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POLITICAL 

ECONOMY. 



W. STANLEY JEVONS, LL.D., M.A., F.R.S., 

■ I 
PROFESSOR OF POLITICAL ECONOMY IN UNIVERSITY COLLEGE, LONDON; 
EXAMINER IN LOGIC AND MORAL PHILOSOPHY IN THE 
UNIVERSITY OF LONDON. 



NEW YORK: 
D. APPLETON AND COMPANY, 

I, 3, AND 5 BOND STREET. 
I 886. 



HO 



1\ 



48 63 3 5 

JUL 1 7 W2 



•0 



CONTENTS. 



Chap. 

I. — Introduction, ... 
II. — Utility, .. . . 
III.— Production of Wealth, 
IV. — Division of Labour, 
V. — Capital, .... 
VI. — Distribution of Wealth, 
VI L— Wages, .... 
VIII. — Trades-Unions, 
IX. — Co-operation, etc., 
X.— The Tenure of Land, . 
XI. — Exchange, 
XII. — Money, .... 
XIII. — Credit and Banking, . 
XIV. — Credit Cycles, 
XV.— The Functions of Government, 
XVI.— Taxation, 



Page 
7 

17 
24 

32 
42 
48 

53 
61 

n 

^7 

95 

103 

no 

115 
123 

126 



PREFACE. 



In preparing this little treatise, I have tried to put the 
truths of PoHtical Economy into a form suitable for 
elementary instruction. While connected with Owens 
College, it was my duty, as Cobden Lecturer on 
Political Economy, to instruct a class of pupil-teachers, 
in order that they might afterwards introduce the 
teaching of this important subject into elementary 
schools. There can be no doubt that it is most 
desirable to disseminate knowledge of the truths of 
political economy through all classes of the population 
by any means which may be available. From ignor- 
ance of these truths arise many of the worst social 
evils — disastrous strikes and lockouts, opposition to 
improvements, improvidence, destitution, misguided 
charity, and discouraging failure in many well-intended 
measures. More than forty years ago Miss Martineau 
successfully popularised the truths of political economy 
in her admirable tales. About the same time, Arch- 
bishop Whately was much struck with the need of 
inculcating knowledge of these matters at an early 
age. With this view he prepared his " Easy Lessons 
on Money Matters," of which many editions have 
been printed. In early boyhood I learned my first 
ideas of political economy from a copy of these 
lessons, from the preface to which I quote these 
remarks of Whately : '' The rudiments of sound know- 
ledge concerning these (subjects) may, it has been 
found by experience, be communicated at a very early 
age. . . . Those, therefore, who are engaged in con- 
ducting, or in patronising or promoting education, 



PREFACE. 



should consider it a matter of no small moment to 
instil, betimes, just notions on subjects with which all 
must in after-life be practically conversant, and in 
which no class of men, from the highest to the lowest, 
can, in such a country as this at least, be safely left in 
ignorance or in error." In later years like opinions 
have been held and efforts made by Mr. William Ellis, 
Professor W. B. Hodgson, Dr. John Watts, Mr. 
Templar, and others, and experience seems to confirm 
both the need and the practicability of the teaching 
advocated by Whately. But it is evident that one 
condition of success in such efforts is the possession 
of a small text-book exactly suited to the purposes in 
view. Relying upon my experience of ten years in the 
instruction of pupil-teachers at Manchester, I have 
now put my lessons into the simplest form which the 
nature of the subject seems to render advisable. 

It is hoped that this little treatise may also 
serve as a stepping-stone to a knowledge of the science 
among general readers of maturer age, who have 
hitherto neglected the study of political economy. 

Owing to the narrow Hmits of the space at my dis- 
posal, it was impossible to treat the whole of the 
science in a satisfactory way. I have, therefore, 
omitted some parts of political economy altogether, 
and have passed over other parts very briefly. Thus 
the larger portion of my space has been reserved for 
such subjects as Production, Division of Labour, Capital 
and Labour, Trades-Unions, and Commercial Crises, 
which are most likely to be interesting and useful to 
readers of this Primer. 



University College, 

GowER Street, London, W.C. 

31^/ yattuary, 1878. 



SCIENCE PRIMERS. 

POLITICAL ECONOMY, 
CHAPTER I.— INTRODUCTION. 

I. What is Political Economy ? Political 
Economy treats of the wealth of nations ; it in- 
quires into the causes which make one nation more 
rich and prosperous than another. It aims at teaching 
what should be done in order that poor people may be 
as few as possible, and that everybody may, as a gene- 
ral rule, be well paid for his work. Other sciences, no 
doubt, assist us in reaching the same end. The 
science of mechanics shows how to obtain force, and 
how to use it in working machines. Chemistry 
teaches how useful substances may be produced — how 
beautiful dyes and odours and oils, for instance, may 
be extracted from the disagreeable refuse of the gas- 
works. Astronomy is necessary for the navigation of 
the oceans. Geology guides in the search for coal 
and metals. 

Various social sciences, also, are needed to promote 
the welfare of mankind. Jurisprudence treats of the 
legal rights of persons, and how they may be best 
defined and secured by just laws. Political Philosophy 
inquires into the different forms of government and 
their relative advantages. Sanitary Science ascertains 
the causes of disease. The science "^ of Statistics 
collects all manner of facts relating to the state or 
community. All these sciences are useful in show- 
ing how we may be made more healthy, wealthy, 
and wise. 

But Political Economy is distinct from all these 
other sciences, and treats of wealth itself; it inquires 
what wealth is ; how we can best consume it when we 
have got it ; and how we may take advantage of 
the other sciences to get it. People are fond of find- 



8 PRIMER OF POLITICAL ECONOMY. [ch. 

ing fault with political economy, because it treats 
only of wealth ; they say that there are many 
better things than wealth, such as virtue, affection, 
generosity. They would have us study these good 
qualities rather than mere wealth. A man may grow 
rich by making hard bargains, and saving up his 
money like a miser. Now as this is not nearly so 
good as if he were to spend his wealth for the benefit 
of his relatives, friends, and the public generally, they 
proceed to condemn the science of wealth. 

But these complainers misunderstand the purpose of 
a science like political economy. They do not see that 
in learning we must do one tiling at a time. We can- 
not learn the social sciences all at the same time. No 
one objects to astronomy that it treats only of the 
stars, or to mathematics that it treats only of numbers 
and quantities. It would be a very curious Science 
Primer which should treat of astronomy, geology, 
chemistry, physics, physiology, &c., all at once. 
There must be many physical sciences, and there 
must be also many social sciences, and each of these 
sciences must treat of its own proper subject, and not 
of things in general. 

2. Mistakes about Political Economy. A 
great many mistakes are made about the science we 
are going to consider by people who ought to know 
better. These mistakes often arise from people think- 
ing that they understand all about political economy 
without studying it. No ordinary person of sense 
ventures to contradict a chemist about chemistry, or 
an astronomer about eclipses, or even a geologist 
about rocks and fossils. But everybody has his 
opinion one way or another about bad trade, or the 
effect of high wages, or the harm of being underbid 
by cheap labour, or any one of hundreds of questions 
of social importance. It does not occur to such 
people that these matters are really more difficult to 
understand than chemistry, or astronomy, or geology, 
and that a lifetime of study is not suiffcient to enable 



I.] INTRODUCTICN. 



US to speak confidently about them. Yet, they who 
have never studied poUtical economy at all, are usually 
the most confident. 

The fact is that, just as physical science was formerly 
hated, so now there is a kind of ignorant dislike and 
impatience of political economy. People wish to 
follow their own impulses and prejudices, and .are 
vexed when told that they are doing just what will 
have the opposite efi"ect to that which they intend. 
Take the case of so-called charity. There are 
many good-hearted people who think that it is virtuous 
to give alms to poor people who ask for them, without 
considering the effect produced upon the people. 
They see the pleasure of the beggar on getting the 
alms, but they do not see the after effects, namely, 
that beggars become more numerous than before. 
Much of the poverty and crime which now exist have 
been caused by mistaken charity in past times, which 
has caused a large part of the population to grow up 
careless, and improvident, and idle. Political economy 
proves that, instead of giving casual ill-considered alms, 
we should educate people, teach them to work and 
earn their own livings, and save up something to live 
upon in old age. If they continue idle and improvi- 
dent, they must suffer the results of it. But as this 
seems hard-hearted treatment, political economists are 
condemned by soft-hearted and mistaken people. The 
science is said to be a dismal, cold-blooded one, and 
it is implied that the object of the science is to make 
the rich richer, and to leave the poor to perish. All 
this is quite mistaken. 

The political economist, when he inquires how 
people may most easily acquire riches, does not teach 
that the rich man should keep his wealth like a miser, 
nor spend it in luxurious living like a spendthrift. 
There is absolutely nothing in the science to dissuade 
the rich man from spending his wealth generously and 
yet wisely. He may prudently help his relatives and 
friends ; he may establish useful public institutions^ 



lo PRIMER OF POLITICAL ECONOMY. [ch. 

such as free public libraries, museums, public parks, 
dispensaries, &c. ; he may assist in educating the poor, 
or promoting institutions for higher education ; he may 
relieve any who are suffering from misfortunes which 
could not have been provided against ; cripples, blind 
people, and all who are absolutely disabled from help- 
ing themselves, are proper objects of the rich man's 
charity. All that the political economist insists upon 
is that charity shall be really charity, and 
shall not injure those Tvhom it is intended 
to aid. It is sad to think that hitherto much harm 
has been done by those who wished only to do good. 

It is sad, again, to see thousands of persons trying 
to improve their positions by means which have just 
the opposite effect, I mean by strikes, by refusing to 
use machinery, and by trying, in various ways, to 
resist the production of wealth. Working men have 
made a political economy of their own : they want to 
make themselves rich by taking care not to produce 
too much riches. They, again, see an immediate 
effect of what they do, but they do not see what 
happens as the after result. It is the same with the 
question of Free Trade. In England we have at 
length learned the wisdom of leaving commerce free. 
In other countries, and even in the Australian Colonies, 
laws are yet passed to make people richer by prevent- 
ing them from using the abundant products of other 
lands. People actually refuse to see that wealth must 
be increased by producing it where it can be produced 
most easily and plentifully. Each trade, each town, 
each nation must furnish what it can yield most 
cheaply, and other goods must be bought from the 
places where they also can be raised most easily. 

Political economy teaches us to look beyond the 
immediate effect of what we do, and to seek the good 
of the whole community, and even of the whole of 
mankind. The present prosperity of England is greatly 
due to the science which Adam Smith gave to the 
world in his "Wealth of Nations." He taught us 



I.] INTRODUCTION. II 

the value of Free Labour and Free Trade, 

and now, a hundred years after the pubHcation of his 
great book, there ought not to be so many mistaken 
people vainly acting in opposition to his lessons. It 
is certain that if people do not understand a 
true political economy, they will make a 
false one of their own. Hence the imperative 
need that no one, neither man nor woman, should 
grow up without acquiring some comprehension of 
the science which we are going to study. 

3. Divisions of the Science. I will begin by 
stating the order in which the several branches or 
divisions of the science of economy are to be con- 
sidered in this little treatise. Firstly, we must learn 
what wealth, the subject of the science, consists of. 
Secondly, we proceed to inquire how wealth is used 
or consumed ; nothing, we shall see, can be wealth, 
unless it be put to some use, and before we make 
wealth we must know what we want to use. Thirdly, 
we can go on to consider how wealth is produced or 
brought into existence ; and how, in the fourth place, 
having been produced, it is shared among the different 
classes of people who have had a hand in producing 
it. Briefly, we may say that political economy treats 
of (i) The Nature, (2) The Consumption, 
(3) The Production, and (4) The Distribution 
of Wealth. It will also be necessary to say a little 
about Taxation. A part of the wealth of every 
country must be taken by the government, in order 
to pay the expenses of defending and governing the 
nation. But taxation may come, perhaps, under the 
head of distribution. 

4. Wealth and Natural Riches. We do not 
learn anything by reading that political economy 
is the science of wealth, unless we know what 
science is, and what wealth is. When one term is 
defined by means of other terms, we must understand 
these other terms, in order to get any light upon the 
subject. In the Primer of Logic I have already 

2 



12 PRIMER OF POLITICAL ECONOMY. [cH. 

attempted to explain what science is, and I will now 
attempt to make plain what wealth is. 

Doubtless many people think that there is no 
difficulty in knowing what wealth is ; the real 
difficulty is to get it. But in this they are mistaken. 
There are a great many people in this country who 
have made themselves rich, and few or none of them 
would be able to explain clearly what wealth is. In 
fact it is not at all easy to decide the question. The 
popular idea is that wealth consists of money, and 
money consists of gold and silver ; the wealthy man, 
then, would be one who has an iron safe full of bags 
of gold and silver money. But this is far from being 
the case ; rich men, as a general rule, have very little 
money in their possession. Instead of bags of money 
they keep good balances at their bankers. But this 
again does not tell us what wealth is, because it is 
difficult to say what a bank balance consists of; the 
balance is shown by a few figures in the bankers' 
books. As a general rule the banker has not got 
in his possession the money which he owes to his 
customers. 

Perhaps some one will say that he is beyond ques- 
tion rich, who owns a great deal of land. But this 
depends entirely upon where and what the land is. 
A man who owns an English county is very wealthy ; 
a man might own an equal extent of land in Australia, 
without being remarkably rich. The savages of 
Australia, who held the land before the English 
took it, had enormous quantities of land, but they 
were nevertheless miserably poor. Thus it is plain 
that land alone is not wealth. 

It may be urged that, in order to form wealth, 
the land should be fertile, the soil should be good, 
the rivers and lakes abounding in fish, and the forests 
full of good timber. Under the ground there should 
be plenty of coal, iron, copper, reefs of gold, &c. If, 
in addition to these, there is a good climate, plenty of 
sunlight, and enough, but not too much, water, then 



1. ] INTR on UCTION. 1 3 

the country is certainly rich. It is true that these 
things have been called natural riches ; but I 
mention them in order to point out that they are 
not in themselves wealth. People may live upon 
land full of natural riches, as the North American 
Indians lived upon the country which now forms the 
United States; nevertheless they may be very poor, 
because they cannot, or they will not labour, in such 
a way as to turn the natural riches into wealth. 
On the other hand, people like the Dutch live upon 
very poor bits of land, and yet become wealthy by 
skill, industry and providence. The fact is that 
wealth is more due to labour and ingenuity than to a 
good soil or climate ; but all these things are needed in 
order that people shall become as rich as the inhabit- 
ants of England, France, the United States, or Australia. 

5. What is Wealth ? Nassau Senior, one of 
the best writers on political economy, defined wealth 
in these words : Under that term we compre- 
hend all those things, and those things only, 
which are transferable, are limited in supply, 
and are directly or indirectly productive of 
pleasure, or preventive of pain. It is necessary 
to understand, in the first place, exactly what Senior 
meant. According to him, whatever is comprehended 
under wealth must have three distinct qualities, and 
whatever has these three qualities must be a part of 
wealth. If these qualities are rightly chosen, we get 
a correct definition, which, as explained in the Logic 
Primer (section 44), is a precise statement of the 
qualities which are just sufficient to make out a class, 
and to tell us what things belong to it and what do 
not. Instead, however, of the long phrase *' directly 
or indirectly productive of pleasure or preventive of 
pain," we may substitute the single word useful, and 
we may then state tlie definition in this simple way : — 

C (i) transferable. 

Wealth — what is < (2) limited in supply. 

( (3) useful. 



14 PRIMER OF POLITICAL ECONOMY. [ch. 

We still need to learn exactly what is meant by the 
three qualities of wealth ; we must learn what it is to 
be transferable, limited in supply, and useful. 

6. Wealth is transferable. By being trans- 
ferable, we mean that a thing can be passed over 
(Latin, trans, across, and few, I carry) from one 
person to another. Sometimes things can be literally 
handed over, like a watch or a book ; sometimes they 
can be transferred by a written deed, or by legal 
possession, as in the case of land and houses ; services, 
also, can be transferred, as when a footman hires him- 
self to a master. Even a musician or a preascher 
transfers his services, when his auditors have the 
benefit of hearing him. But there are many desirable 
things which cannot be transferred from one person to 
another; a rich man can hire a footman, but he 
cannot buy the footman's good health ; he can hire the 
services of the best physician, but if these services 
fail to restore health, there is no help. So, too, it 
is impossible really to buy or sell the love of relatives, 
the esteem of friends, the happiness of a good con- 
science. Wealth may do a great deal, but it cannot 
really ensure those things which are more precious 
than pearls and rubies. Political economy does not 
pretend to examine all the causes of happiness, and 
those moral riches which cannot be bought and sold 
are no part of wealth in our present use of the word. 
The poor man who has a good conscience, affectionate 
friends, and good health, may really be much happier 
than the rich man, who is deprived of such blessings ; 
but, on the other hand, a man need not lose his good 
conscience, and his other sources of happiness when 
he becomes rich and enjoys all the interesting occupa- 
tions and amusements which wealth can give. Wealth, 
then, is far from being the only good thing : 
nevertheless it is good, because it saves us from 
too severe labour, from the fear of actual want, and 
enables us to buy such pleasant things and services as 
are transferable. 



I.] INTRODUCTION. 15 

7, Wealth is limited in Supply. In the 
second place, things cannot be called wealth unless 
they be limited in supply ; if we have just as much 
of any substance as we want, then we shall not esteem 
a new supply of it. Thus the air around us is not 
wealth in ordinary circumstances, because we have 
only to open our mouths and we get as much as we 
can use. What air we do actually breathe is exceed- 
ingly useful, because it keeps us alive ; but we usually 
pay nothing for it, because there is plenty for all. In 
a diving bell, or a deep mine, however, air becomes 
limited in supply, and then may be considered a part 
of wealth. When the tunnel under the English 
Channel is completed, it will be a great question 
how to get air to breathe in the middle of it. Even 
in the Metropolitan Railway tunnel a little more fresh 
air would be very valuable. 

On the other hand diamonds, though much valued, 
are used for few purposes ; they make beautiful 
ornaments and they serve to cut glass or to bore 
rocks. Their high value chiefly arises from the fact 
that they are scarce. Of course scarcity alone will 
not create value. There are many scarce metals, or 
minerals, of which only a few little bits have ever yet 
been seen; but such substances are not valuable, 
unless some special use has been found for them. 
The metal iridium is sold at a very high price because 
it is wanted for making the tips of gold pens, and can 
be got only in small quantities. 

8. Wealth is useful. In the third place, we 
can easily see that everything which forms a part of 
wealth must be useful, or have utility, that is, it must 
serve some purpose, or be agreeable and desirable in 
some way or other. Senior said correctly that useful 
things are those 'which directly or indirectly 
produce pleasure or prevent pain. A well 
tuned and well played musical instrument produces 
pleasure ; a dose of medicine prevents pain to one who 
is in need of it. But it is often impossible to decide 



i6 PRIMER OF POLITICAL ECONOMY. [CH. 

whether things give more pleasure or prevent more 
pain ; dinner saves us from the pain of hunger and 
gives us the pleasure of eating good things. There is 
utility so far as pleasure is increased and pain de- 
creased ; nor does it matter, as far as political economy 
is concerned, what is the nature of the pleasure. 

Then, again, we need not be particular as to whether 
things directly produce pleasure, Hke the clothes 
we wear, or whether they indirectly do so, as in the 
cases of the machines employed to make the clothes. 
Things are indirectly useful when, like tools, machines, 
materials, &c., they are only wanted to make other 
things, which shall be actually consumed and enjoyed 
by some person. The carriage in which a person 
takes a pleasant drive is directly useful ; the baker's 
cart which brings him food is indirectly useful. 
But sometimes we can hardly distinguish. Shall we say 
that the meat put into the mouth is directly, but the 
fork which puts it in is indirectly, useful ? 

9. Commodity. We now know exactly what is 
wealth ; but instead of speaking continually of wealth, 
it will often be convenient to speak of commodities, 
or goods. A commodity is any portion of 
v/ealth — anything, therefore, which is useful, and 
transferable, and limited in supply. Wool, cotton, 
iron, tea, books, boots, pianos, &c., are all commo- 
dities in certain circumstances, but not in all circum- 
stances. Wool on a stray sheep lost in the mountains 
is not a commodity, nor iron in a mine which cannot 
be worked. A commodity, in short, is any- 
thing which is really useful and -wanted, so 
that people will buy or sell it. But, instead 
of the long word commodity, I shall often use the 
shorter word goods, and the reader should remem- 
ber that 

goods i: commodities = portion of wealth. 



11.] UTILITY. 17 

CHAPTER 11. 
UTILITY. 

10. Our Wants are various. After a little 
reflection, we shall see that we generally want but 
little of any one kind of commodity, and prefer to 
have a portion of one kind and a portion of another 
kind. Nobody likes to make his dinner off potatoes 
only, or bread only, or even beef only ; he prefers to 
have some beef, some bread, some potatoes, besides, 
perhaps, beer, pudding, &c. Similarly, a man would 
not care to have many suits of clothes all alike ; he 
may wish to have several suits, no doubt, but then 
some should be warmer, others thinner; some for 
evening dress, others for travelling, and so on. A 
library all made of copies of the same book would be 
absurd; to keep several exact duplicates of any 
work would be generally useless. A collector of en- 
gravings would not care to have many identical copies 
of the same engraving. In all these, and many other 
cases, we learn that human wants tend towards 
variety ; each separate w^ant is soon satis- 
fied, or made full (Latin, satis, enough, and 
facere, to make), and then some other want begins 
to be felt. This was called by Senior the law 01 
variety, and it is the most important law in the 
whole of political economy. 

It is easy to see, too, that there is a natural order 
in which our wants follow each other as regards im- 
portance ; we must have food to eat, and if we can- 
not get anything else we are glad to get bread; next 
we want meat, vegetables, fruit, and other delicacies. 
Clothing is not on the whole as necessary as food; 
but, when a man has plenty to eat, he begins to think 
of dressing himself well. Next comes the question of 
a house to live in; a mere cabin is better than 
nothing, but the richer a man is the larger the house 
10* 



1 8 PRIMER OF POLITICAL ECONOMY. [ch. 

he likes to have. When he has got a good house he 
wants to fill it with furniture, books, pictures, musical 
instruments, articles of vertu, and so forth. Thus we 
can lay down very roughly a la"W of succession 
of wants, somewhat in this order : air, food, cloth- 
ing, lodging, literature, articles of adornment and 
amusement. 

It is very important to observe that there is no end 
nor limit to the number of various things which a rich 
man will like to have, if he can get them. He who 
has got one good house begins to wish for another : 
he likes to have one house in town, another in the 
country. Some dukes and other very rich people 
have four, five, or more houses. From these obser- 
vations we learn that there can never be, among 
civilised nations, so much wealth, that people 
would cease to wish for any more. However much 
we manage to produce, there are still many other 
things which we want to acquire. When people are 
well fed, they begin to want good clothing; when 
they are well clothed, they want good houses, and 
furniture, and objects of art. If, then, too much 
wealth were ever produced, it would be too much 
of one sort, not too much of all sorts. 
Farmers might be ruined if they grew so much corn 
that nobody could eat it all ; then, instead of produc- 
ing so much corn, they ought to produce more beef 
and milk. Thus there is no fear that, by machinery 
or other improvements, things will be made so plen- 
tifully that workmen would be thrown out of employ- 
ment, and not wanted any more. If men were not 
required at one trade, they would only need to learn 
a new trade. 

II. When things are useful. The chief ques- 
tion to consider, then, is when things are useful . and 
when they are not. This entirely depends upon 
whether we want them or not. Most things 
about us, the air, rain water, stones, soil, &c., are not 
wealth, because we do not want them, or want so little 



II.] UTILITY, 19 

that we can readily get what we need. Let us consider 
carefully whether we can say that water is useful, 
or in what sense we may say so. It is common to 
hear people say that water is the most useful substance 
in the world, and so it is — in the right place, and at the 
right time. But if water is too plentiful , and flows 
into your cellars, it is not useful there \ if it soaks 
through the walls and produces rheumatism, it is 
hurtful, not useful. If a man wanting pure good water, 
digs a well and the water comes, it is useful. But 
if, in digging a coal pit, water rushes in and prevents 
the miners reaching the coal seam, it is clear that the 
water is the opposite of useful. In some countries 
rain comes very irregularly and uncertainly. In Aus- 
tralia the droughts last for one or two or even three 
years, and in the interior of the continent the rivers 
sometimes dry up altogether. The dirtiest pools 
then become very valuable for keeping the flocks of 
sheep alive. In New South Wales water has been sold 
for three shillings a bucketful. When a drought breaks 
up, sudden floods come down the rivers, destroying 
the dams and bridges, sweeping away houses, 
and often drowning men and animals. It is quite 
plain that we cannot say water is always useful ; it is 
often so hurtful as to ruin and drown people. 
All that we can really say is that water is 
useful when and where we want it, and 
in such quantity as we w^ant, and not 
otherwise. We must not say that all water is 
useful, but only that such water is useful as we can 
actually use. 

It is now easy to see why things, in order to be 
wealth, must be limited in supply; for we never 
want an unlimited quantity of anything. A man can- 
not drink more than two or three quarts of water in 
the day, nor eat more than a few pounds of food. 
Thus we can understand why in South America, where 
there are great herds of cattle, the best beef is not 
wealth, namely, because there is so much that there 



20 PRIMER OF POLITICAL ECONOMY. [CH. 

are not people enough to eat it. The beef which is 
eaten there is just as useful in nourishing people as 
beef eaten in England, but it is not so valuable be- 
cause there is plenty of beef to spare, that is, plenty 
of beef not wanted by the people. 

12. What w^e must aim at. Now we can see 
precisely what it is that we have to learn in political 
economy. It is how to supply our various 
wants as fully as possible. To do this we must, 
first of all, ascertain what things are wanted. There 
is no use making things unless, when made, they 
are useful, and the quantities of things must be 
proportioned to what are wanted. The cabinetmaker 
must not make a great many tables, and io,'^ chairs ; 
he must make some tables and more chairs. Similarly, 
every kind of commodity must be supplied when it is 
most wanted ; and nothing must be over-supplied, 
that is manufactured in such large quantities that it 
would have been better to spend the labour in manu- 
facturing other things. 

Secondly, we must always try to produce things 
with the least possible labour ; for labour is painful 
exertion, and we wish to undergo as little pain and 
trouble as we can. Thus, as Professor Hearn, of 
the University of Melbourne, well described it, politi- 
cal economy is the science of efforts to 
satisfy wants ; it teaches us how to find the 
shortest way to what we wish for. The object which 
we aim at is to obtain the most riches at the 
cost of the least labour. 

13. 'When to consume w^ealth. To consume 
a commodity is to destroy its utility, as when coal is 
burnt, or bread eaten, or a jug broken, or a piano 
worn out. Things lose their utility in various ways, 
as when they go bad, like meat and fish; when the 
fashion changes, as with ladies' attire ; or when they 
merely grow old, as in the case of an almanack, or 
a directory. Again, houses fall into bad repair ; ricks 
of corn may be burnt down \ ships may founder. In 



IL] UTILITY. 21 

all these cases utility is destroyed, slowly or quickly, 
and the commodities may be said to be consumed. 
It is obvious that we must use things while they are 
fit to be used, if we are to use them at all. 

It is evident, too, that we ought to try to get the 
utmost possible use out of things which we are happy 
enough to possess. If an object is not injured nor 
destroyed by use, as in the case of reading a book, or 
looking at a picture, then the more often we use it the 
greater is the utility. Such things become more useful 
if they are passed on from one person to another, like 
books in a circulating library. In this case there 
arises what we may call the multiplication of 
utility. Public libraries, museums, picture galleries 
and like institutions all multiply utility, and the cost 
of such institutions is little or nothing compared with 
their usefulness. 

When a commodity is destroyed at once by use, as 
in. the case of food, it is obvious that only one person 
can use the same portion of commodity. Our object 
must then be to consume it when it is most useful. 
If a man lost in the bush find himself with a short 
supply of food, it would be foolish of him to eat it all 
up at once, when he might starve for several days 
afterwards. He should spread out his supply, so as 
to eat each bit of food when it will support 'his 
strength the most. So we ought to do with the earnings 
of a life time. The working man should not spend 
all his wages when trade is brisk, because he will 
want some of it much more when trade becomes slack, 
and he is out of employment. Similarly, that which 
is spent in early life upon mere luxuries and frivolities, 
might be much more useful in old age, when even 
necessaries and ordinary comforts may be difficult to 
obtain. All wealth is produced in order that 
it may be consumed, but then it must be 
consumed when it best fulfils its purpose, 
that is, when it is most useful. 

14, The Fallacy of Consumption. It is not 



22 PRIMER OF POLITICAL ECONOMY. [cH. 

uncommon to hear people say that they ought to 
spend money freely in order to encourage trade. If 
every person were to save his money instead of spend- 
ing it, trade, they think, would languish and workmen 
would be out of employment. Tradespeople favour 
these notions, because it is obvious that, the more a 
milliner or draper can persuade his customer to buy, 
the more profit he makes thereby. The customers, 
too, are quite inclined to think the argument a good 
one, because they enjoy buying new dresses, and other 
pleasant things. Nevertheless the argument is a 
bad fallacy. 

The fact is, that a person who has riches cannot 
help employing labour of some kind or other. If he 
saves up his money he probably puts it into a bank ; 
but the banker does not keep it idle. The banker 
lends it out again to merchants, manufacturers and 
builders, who use it to increase their business and 
employ more hands. If he buy railway shares or 
government funds, those who receive the money put 
it to some other profitable use. If the rich man 
actually hoards up his money in the form of gold 
or silver, he gets no advantage from it, but he creates 
so m.uch more demand for gold or silver. If many 
rich people were to take to hoarding up gold, the 
result would be to make gold mining more profitable, 
and there would be so many more gold miners, instead 
of railway navvies, or other workmen. 

We see then that, when a rich person decides how 
to spend his money he is deciding not how many more 
workpeople shall be set to work, but what kind of work 
they shall do. If he decide to give a grand fancy ball, 
then in the end there will be so many more milliners, 
costumiers, lacemakers, confectioners, &c. A single 
ball indeed will have no great effect; but, if many 
people were to do the same, there would soon be more 
tradespeople attracted to these trades. If, on the 
other hand, rich people invest their money in a 
new railway, there will be so many more surveyors, 



II.] UTILITY. 23 

engineers, foremen, navvies, iron puddlers, iron rollers, 
engine mechanics, carriage builders, &c. 

The question really comes to this, whether people 
are made happier by more fancy balls, or by more 
railways. A fancy ball creates amusement at the time, 
but it costs a great deal of money, especially to the 
guests who buy expensive costumes. When it is over 
there is no permanent result, and no one is much the 
better for it. The raihvay, on the other hand, is no 
immediate cause of pleasure, but it cheapens goods by 
enabling them to be carried more easily : it allows 
people to live in the country, instead of the crowded 
town, or it carries them on pleasant and wholesome 
excursions. 

We see, then, that it is simple folly to approve of 
consumption for its own sake, or because it benefits 
trade. In spending our wealth we ought to think 
solely of the advantage which people get out of that 
spending. 

15. The Fallacy of Non-consumption. 
Some people fall into the opposite fallacy of thinking 
that all spending is an evil. The best thing to do 
with wealth is to keep it and let it grow by interest, or 
even to neglect the interest and keep the gold itself. 
Thus they become what we call misers, and there are 
always a certain number of people, who deprive them- 
selves of the ordinary pleasures of life, in order that 
they may have the pleasure of feehng rich. Now 
these kind of people do no positive harm to their 
fellow-men ; on the contrary they increase the wealth 
of the country, and some one or other will sooner or 
later benefit by it. Moreover, if they put their wealth 
into banks and other good investments, they do great 
service in increasing the capital of the nation, and thus 
enabling so many more factories, docks, railways, and 
other important works to be constructed. Most people 
are so fond of spending their money on passing amuse- 
ments, entertainments, eating and drinking, and fine 
dressing, that it is a distinct advantage to have other 
3 



24 PRIMER OF POLITICAL ECONOMY. [CH. 

people who will put their wealth into a more perman- 
ently useful form. 

Nevertheless, there could be no use in abstaining 
from all enjoyment in order that we might lay up a 
store of wealth. Things are not wealth unless they are 
useful and pleasant to us. If everybody invested his 
savings in railway shares, we should have so many 
railways that they could not be all used, and they 
would become rather a nuisance than a benefit. 
Similarly, there could be no good in building docks 
unless there were ships to load in them, nor ships unless 
there were goods or passengers to convey. It would 
be equally absurd to make cotton mills if there were 
already enough to manufacture as much cotton goods 
as people could consume. 

Thus we come to see that wealth must be fitted for 
use and consumption in some way or other. What we 
have to do is to endeavour to spend our means so as 
to get the greatest real happiness for ourselves, our 
relatives, friends, and all other people whom we ought 
to consider. 

CHAPTER III. 

PRODUCTION OF WEALTH. 

1 6. The Requisites of Production. The first 
thing in industry, as we now see, is to decide what 
we want ; the next thing is to get it, or make it, or, as 
we shall say, produce it, and we ought obviously to 
produce it with the least possible labour. To learn 
how this may be done, we must inquire what is 
needful for the production of wealth. There are, as is 
commonly and correctly said, three requisites of 
production ; before we can, in the present state of 
society, undertake to produce wealth, we must have the 
three following things : — 

(i) Land, 

(2) Labour, 

(3) Capital. 



III.] PRODUCTION OF WEALTH. 25 

In production we bring these things together; we 
apply labour to the land, and we employ the capital in 
assisting the labourer with tools, and feeding him 
while he is engaged on the work. We must now 
proceed to consider each of the three requisites in 
succession. 

17. Land or Source of Materials. The word 
production is a very good one ; it means dra"wing 
forth (Latin, pro, before, and ducere, to draw), and 
it thus exactly expresses the fact that, when we want 
to create wealth, we have to go to some piece of land, 
or to some lake, river, or sea, and draw forth the 
substance which is to be made into wealth. It does 
not matter whether the material comes from the 
surface of the earth, or from mines and quarries sunk 
into the earth, or from seas and oceans. Our food 
mostly grows upon the land, as in the case of corn, 
potatoes, cattle, game, &c. ; our clothes are chiefly 
made of cotton, flax, wool, skins, raised in like manner. 
Minerals and metals are obtained by sinking pits and 
mines into the crust of the earth. Rivers, lakes, seas, 
and oceans are no slight source of wealth : they yield 
food, oil, whalebone, sealskin, &c. We cannot manu- 
facture any goods unless we have some matter to work 
upon ; to make a pin we must get copper, zinc, and 
tin out of mines ; a ribbon requires the silk and the 
dye materials ; everything that we touch, and use, and 
eat, and drink, contains substance, so that we must 
always begin by finding a supply of the right sort of 
materials. 

Commonly, too, we want something more than 
matter; we want force which shall help us to carry 
and work the raw material. People naturally wish to 
avoid tiring themselves by labouring with their own 
arms and legs, and so they make windmills to grind 
corn, ships to carry goods, steam-engines to pump 
water and to do all sorts of hard work. From the 
earth, or, as we say, from Nature, we obtain both the 
materials of wealth and the force which helps us to 



26 PRIMER OF POLITICAL ECONOMY. [cH. 

turn the materials into wealth. Whatever thus fur- 
nishes us with the first requisite of production is called 
a natural agent, that is, something which acts for 
us and assists us (Latin, agtns, acting). Among 
natural agents land is by far the most important, 
because, when supplied with abundant sunlight and 
moisture, it may be cultivated and made to yield all 
kinds of crops. Accordingly, economists often speak 
of land, when their remarks would really apply as well 
to rocks and rivers. Three-quarters of the whole 
surface of the globe is covered with seas ; but this 
vast extent of salt water furnishes little wealth, except 
whales, seals, sea-weed, and a few other kinds of 
animals and plants. Hence, when we speak of land, 
we really mean any source of materials — any natural 
agent, and we may say that 
land = source of materials = natural agent. 

1 8. Labour. Nothing is more plain, however, 
than that natural agents alone do not make wealth. 
A man would perish in the most fertile spot if he did 
not take some trouble in appropriating the things 
around him. Fruit growing wild on the trees must be 
plucked before it becomes wealth, and wild game 
must be caught before it can be cooked and eaten. 
We must spend a great deal of labour if we wish to 
have comfortable clothes and houses and regular 
supplies of food ; the proper sorts of materials must 
be gradually got together, and shaped and manufac- 
tured. Thus the amount of wealth which people can 
obtain depends far more upon their activity and skill 
in labouring than upon the abundance of materials 
around them. 

As already remarked. North America is a very rich 
land, containing plenty of fine soil, seams of coal, 
veins of metal, rivers full of fish, and forests of fine 
timber, everything, in short, needed in the way of 
materials ; yet the American Indians lived in this land 
for thousands of years in great poverty, because they 
had not the knowledge and perseverance to enable 



III.] PRODUCTION OF WEALTH. 27 

them to labour properly and produce wealth out of 
natural agents. Thus we see clearly that skilful and 
intelligent and regular labour is requisite to the pro- 
duction of wealth. 

19. Capital. In order that we may produce much 
wealth, we require something further, namely, the 
capital, which supports labourers while they are 
engaged in their work. Men must have food once a 
day, not to say two or three times ; if then they have 
no stock of food on hand, they must go at once and 
get it in the best way they can, for fear of starving. 
They must grub up roots, or gather grass seeds, or 
catch wild animals — if they can. When working in 
this way, they usually spend a great deal of labour for 
very little result; Australian natives sometimes have 
to cut down a large tree with stone axes, which is 
very hard work, in order to catch an opossum or two. 
Men who live in this way from hand to mouth have 
no time nor strength to make arrangements so as to 
get food and clothes in the easiest way. It requires 
much labour to plough the ground, to harrow it, and 
sow it with corn, besides fencing it in ; when all this 
is done it is requisite to wait six months before the 
crop can be gathered. Certainly, the amount of food 
thus obtained is large compared with the labour : but 
wild Indians and other ignorant tribes of men cannot 
wait while the corn is growing ; the poor Australian 
natives have to gather grass seeds or find worms and 
opossums every day. 

There is a good Japanese maxim which says, " Dig 
a well before you are thirsty," and it is evidently very 
desirable to do so. But you must have capital to live 
upon while you are digging the well. In the same 
way, almost every mode of getting wealth without 
extreme labour requires that we shall have a stock of 
food to subsist upon while we are working and wait- 
ing, and this stock is called capital. In the 
absence of capital people find themselves continually 
in difficulties, and in danger of starvation. In the 



28 PRIMER OF POLITICAL ECONOMY. [ch. 

first of her tales on political economy, called " Life 
in the Wilds," Miss Martineau has beautifully described 
the position of settlers at the Cape of Good Hope, 
who are imagined to have been attacked by Bushmen 
and robbed of their stock of capital. She shows us 
how difficult it is to get any food or to do any useful 
work, because something else is wanted beforehand — 
some tool, or material, or at any rate time to make it. 
But there is no time to make anything, because all 
attention has to be given to finding shelter for the 
night, and something for supper. Everybody who 
wishes to understand the necessity for capital, and the 
way capital serves us, should read this tale of Miss 
Martineau, and then go on to her other tales about 
Political Economy 

We can hardly say that capital is as requisite to 
production as land and labour, for the reason that 
capital must have been the produce of land and 
labour. Ther-e must always, indeed, be a little capital 
in possession, even though it be only the last meal 
in the stomach, before we can produce more. But 
there is no good attempting to say exactly how capital 
began to be collected, because it began in the 
childhood of the world, when men and women lived 
more like wild animals than as we live now. Certain it 
is that we cannot have loaves of bread, and knives and 
forks, and keep ourselves warm with clothes and brick 
houses, unless we have a stock of capital to live upon 
while we are making all these things. Capital is 
requisite, then, not so much that "we shall 
labour, but that 'we shall labour economically 
and with great success. We may call it a 
secondary requisite, and it would be best to state 
the requisites of production in this way — 

Primary requisites [^^^^^^ ^^ent. 

Secondary requisite capital. 

20. How to make Labour most Productive. 

The great object must be to make labour as productive 



III.] PRODUCTION OF WEALTH. 29 

as possible, that is, to get as much wealth as we can 
with a reasonable amount of labour. In order to do 
this we must take care to labour in the most favourable 
way, and there is no difficulty in seeing that we ought 
to labour 

(i) At the best time ; 

(2) At the best place ; 

(3) In the best manner. 

21. Work at the best Time. Of course we 
ought to do things when it is most easy to do them, 
and when we are likely to get most produce for our 
labour. The angler goes to the river in the early 
morning or the evening, when the fish will bite ; the 
farmer makes hay while the sun shines ; the miller 
grinds corn when the breeze is fresh, or the stream 
full; and the skipper starts when wind and tide are in 
his favour. By long experience farmers have found 
out the best time of year for doing every kind of work: 
seed is sown in autumn or spring ; manure is carried 
in winter when the ground is frozen ; hedges and 
ditches are mended when there is nothing else to do, 
and the harvest is gathered just when it is ripe, and 
the weather is fine. Norwegian peasants work hard 
all day in July and August to cut as much grass, 
and make as much hay as possible. They never think 
of timber then, because they know that there will be 
plenty of time during the long winter to cut down 
trees ; and when the snow fills up all the hollows in the 
mountain side, they can easily drag the trees down to 
the rivers, which rise high with floods after the melting 
of the snow, and carry the logs away, without further 
labour, to the towns and ports. It is a good rule not 
to do to-day what we can probably do more easily to- 
morrow : but it is a still better rule not to put off till 
to-morrow what we can do more easily to-day. In 
order, however, that we may be able to wait and to do 
each kind of work at the best time, we must have 
enough capital to live upon in the meantime. 

22. Work at the Best Place. Again, we 



30 PRIMER OF POLITICAL ECONOMY. [ch. 

should carry on every kind of work at the place best 
suited for it, that we can get possession of. In many 
cases this is so obvious that the remark seems absurd. 
Does any one plant fruit trees on the sea sands, or sow 
corn among rocks? Of course not, because there 
would be no result. No one is so foolish as to spend 
his labour in a place where it would be wasted alto- 
gether. In other cases it is a question of degree; 
there may be some produce here, but there would be 
more produce there. In the south of England vines 
can be made to grow in the open air, and, in former 
days, wine used to be made from grapes grown in Eng- 
land. But vines grow much better on the sunny hills 
of France, Spain, and Germany, and the wine which 
can there be made with the same labour is far more 
plentiful and immensely better in quality. Those, 
then, who want to make wine had much better remove 
to the continent, or, still better, let the French, 
Spaniards, and Germans produce wine for us. In 
England we have good soil and a moist climate fitted 
for growing grass, and the best thing which our farmers 
can do is to raise cattle and produce plenty of milk, 
butter, and cheese. 

In order that the world may grow as rich as pos- 
sible, each country should give its attention to pro- 
ducing what it can produce most easily in its present 
circumstances, getting other things in exchange by 
foreign trade. The United States can raise endless 
quantities of cotton, corn, bacon, meat, fruit, petroleum, 
besides plenty of gold, silver, copper, iron, &c. Aus- 
tralia, New Zealand, and South Africa will furnish 
much wool, hides, sugar, preserved meats, besides 
gold, copper, and diamonds. Tropical Africa has 
palm oil, ivory, teak wood, gum, &c. South America 
abounds in cattle from which we get tallow, hides, 
bones, horns, essence of beef, &c. China supplies us 
with vast quantities of tea, in addition to silk, ginger, 
and many minor commodities. India sends cotton, 
indigo, jute, rice, seeds, sugar, spices, and all kinds of 



III.] PRODUCTION OF WEALTH. 31 

other products. Every part of the world has some 
commodities which it can produce better than other 
countries, and if men and governments were wise, 
they would allow trade to be as free as possible, in 
order that each thing shall be produced where it costs 
the least labour to produce it. 

23. Work in the Best Manner. Whatever the 
kind of industry carried on in a place, we ought to 
take care, thirdly, that each labourer works in the 
best manner, so as not to waste his labour or to make 
mistakes. There are many different ways of setting 
about the same work, and, in order that he may 
choose the best, the labourer must be intelligent and 
skilful, or else he must be directed by some person 
who has knowledge and skill. Moreover, there must 
be, as we shall see, great division of labour, so that 
each man shall do the kind of work he can do best. 
We need, then — 

(i) Science, 

(2) Division of labour. 

24. The Need of Science. In order that he 
may employ his labour to the best advantage, it is 
requisite that the labourer should be not merely 
skilful, that is, clever, and practised in handiwork, but 
that he should also be guided by a scientific knowledge 
of the things with which he is dealing. Knowledge of 
nature consists, to a great extent, in understanding the 
causes of things, that is, in knowing what things 
must be put together in order that certain other things 
shall be produced. Thus the steam-engine is due to 
the discovery that if heat be applied to water, the 
result is steam expanding with much force, so that a 
firebox, coal, boiler, and water are causes of force. 
Whenever we want to do any work, then, we must 
begin by learning, if possible, what are the causes 
which will produce it most easily and abundantly. 
By knowledge we shall often be saved from much 
needless labour. 

As Sir John Herschel has explained, science some- 



32 PRIMER OF POLITICAL ECONOMY. [ch. 

times shows us that things which we wish to do 
are really impossible, as, for instance, to invent 
a perpetual motion, that is, a machine which moves 
itself. At other times science teaches us that the 
way in which w^e are trying to make some- 
thing is altogether the wrong way. Thus, 
iron-masters used to think that the best way of smelt- 
ing iron in the blast-furnace was to blow the furnace 
with cold air; science, however, showed that, instead 
of being cold, the air sent into the furnace should be 
made as hot as possible. Then, again, science often 
enables us to do our w^ork w^ith a great saving 
of labour. The boatman or bargeman takes care to 
learn the state of the tide, so that he may have the 
tide in his favour in making any journey. Meteor- 
ologists have now prepared maps of the oceans show- 
ing the sea-captain where he will find winds and cur- 
rents most favourable to a rapid voyage. Lastly, 
science sometimes leads us to discover 
w^onderful things w^hich we should not have 
otherwise thought it possible to do; it is suffi- 
cient to mention the discovery of photography and 
the invention of the telegraph and the telephone. No 
doubt it may be said that all the greatest improve- 
ments in industry — most of what tends to raise man 
above the condition of the brute animals — proceed 
from science. The poet Virgil was right when he 
said, "Happy is he who knows the causes 
of things." 



CHAPTER IV. 

DIVISION OF LABOUR. 

25. How Division of Labour Arises. When 
a number of workmen are engaged on any work, we 
find that each man usually takes one part of the work, 
and leaves other parts of the work to his mates. 
People by degrees arrange themselves into different 



IV. J DIVISION OF LAB UR. 



33 



trades, so that the whole work done in any place is 
divided into many employments or crafts. This 
division of labour is found in all civilised countries, 
and more or less in all states of society, which are not 
merely barbarous. In every village there is the 
butcher and the baker, and the blacksmith and the 
carpenter. Even in a single family there is division 
of labour: the husband ploughs, or cuts timber; the 
wife cooks, manages the house, and spins or weaves ; 
the sons hunt or tend sheep -, the daughters employ 
themselves as milkmaids. There is a popular couplet 
which says — 

' ' When Adam delved and Eve span, 
Who was then the gentleman?" 

It seems to express the fact that this division of 
labour existed in very early times, before there were 
any gentlemen. 

In modern times the division of labour is immensely 
complicated : not only has every town and village its 
different tradespeople, and artisans and men in 
different posts and employments, but each district has 
its peculiar manufactures. In one place cotton goods 
are produced ; in another, woollen goods ; in other parts 
of the country flax, jute, silk are manufactured. Iron is 
made in Staffordshire, Cleveland, South Wales, and 
Scotland ; copper is smelted in South Wales ; crockery 
is baked in the potteries ; hosiery is manufactured in 
Nottingham and Leicester; linens are sewed in the 
North of Ireland ; and so on. In every separate 
factory, again, there is division of labour; there is the 
manager, the chief clerk, the assistant clerks; the 
foremen of different departments, the timekeeper, the 
engine-tenter, and stokers, the common labourers, 
the carters, errand boys, porters, &c., all in addition 
to the actual mechanics of different kinds and ranks 
who do the principal work. Thus the division of 
labour spreads itself throughout the whole of society, 
from the Queen and her Ministers, down to the errand 
boy, or the street scavenger. 
11* 



34 PRIMER OF POLITICAL ECONOMY. [ch. 

26. Adam Smith on the Division of Labour. 

There are many ways in which we gain by the division 
of labour, but Adam Smith has treated the subject so 
excellently that we had better, in the first place, 
consider his view of the matter. There are, as he 
thought, three ways in which advantage arises from the 
division of labour, namely — 

(i.) Increase of dexterity in every particular work- 
man. 

(2.) Saving of the time which is commonly lost in 
passing from one kind of work to another. 

(3.) The invention of a great number of machines, 
which facilitate and abridge labour, and enable one 
man to do the work of many. 

There can be no doubt as to the increase of 
dexterity, which arises from practice. Any one who 
has tried to imitate a juggler, or to play the piano, 
without having learned to do it, knows how absurdly 
he fails. Nobody could possibly do the work of a 
glass-blower without long practice. Even when a 
man can do a job in some sort of way, he will do it 
much more quickly if he does it often. Adam Smith 
states that if a blacksmith had to make nails without 
having been accustomed to the work, he would not 
make above 200 or 300 bad nails in a day. With 
practice he might learn to make 800 or 1000 nails in a 
day ; but boys who are brought up to the nailer's trade 
can turn out 2300 nails of the same kind in the same 
time. But there is no need of many examples : every- 
thing that we see well or quickly made has been made 
by men who have spent a great deal of time and trouble 
in learning and practising the work. 

Secondly, there is a great deal of time lost 
v^hen a man changes from one kind of 
work to another many times in the day. Be- 
fore you can make a thing you must get all 
the right tools and materials around you; when 
you have finished one box, for instance, you are 
all ready to make another with less trouble than the 



IV.] DIVISION OF LABOUR. 35 

first ; but if you have to go off and do something quite 
different, such as to mend a pair of shoes or write a 
letter, a different set of implements have to be got 
ready. A man, as Adam Smith thought, saunters a 
little in turning his hand from one kind of employment 
to another, and if this happens frequently, he is likely 
to become lazy. 

In the third place, Smith asserted that the 
division of labour leads to the invention 
of machines which abridge labour, because men, 
he thought, were much more likely to discover 
easy methods of attaining an object when their 
whole attention is directed to that object. But 
it seems doubtful how far this is correct. Work- 
men do occasionally invent some mode of less- 
ening their labour, and a few important inventions 
have been made in this way. But, as a general rule, 
the division of labour leads to invention, because it 
enables ingenious men to make invention their pro- 
fession. The greatest inventors, such as James Watt, 
Bramah, Fulton, Roberts, Nasmyth, Howe, Fairbairn, 
Whitworth, the Stephensons, Wheatstone, Bessemer, 
Siemens, have not been led to invention in the way 
described by Adam Smith, but have cultivated an 
original genius by careful study and long practice in 
mechanical construction. But the division of labour 
greatly assists invention, because it enables each fac- 
tory to adopt particular kinds of machinery. In Eng- 
land the division of labour is continually becoming 
more and more minute, and it is not uncommon to 
find that the whole supply of some commodity is 
furnished from a single manufactory, which can then 
afford to have a set of machines invented on purpose 
to produce this one commodity. Such is even more 
the case in the large manufactories of the United States. 

I will now describe four other ways in which great 
saving of labour arises from the division of labour, as 
follows : — 

27. The Multiplication of Services. A great 
4 



36 PRIMER OF POLITICAL ECONOMY. [ch. 

deal of labour is often saved by arranging work so 
that a labourer may serve many persons as easily as 
one. If a messenger is going to carry a letter to the 
post-office, he can as readily carry a score. Instead 
of twenty people each carrying their own letters, one 
messenger can do the whole work without more 
trouble. This explains why the post-office is able to 
forward a letter from any part of the kingdom to any 
other part for a penny or even a halfpenny. There 
are so many people sending and receiving letters, that 
a postman usually carries a great many, and often 
delivers half-a-dozen at once. But it would be quite 
impossible to send telegrams so cheaply, because 
every message has to be separately telegraphed along 
the wires, and then delivered at once by a special 
messenger, who can seldom carry more than one 
message at a time. Archbishop Whately pointed out 
that when a party of travellers exploring a new 
country camp out at night, they naturally divide the 
work : one attends to the horses, another unpacks the 
stores, a third makes a fire and cooks the supper, a 
fourth goes for water, and so on. It would be quite 
absurd if a dozen travellers in one party were to light 
a dozen separate fires, and cook a dozen separate 
meals. The labour of lighting a fire and cooking for 
itvvelve persons is not much greater than doing the 
^same for one or two. There are many things which, 
if once done, will serve for thousands or millions of 
'people. If a person gets important information, as, 
ifor instance, that a storm is coming across the Atlantic 
Ocean, he can warn a whole nation by means of 
the newspapers. It is a great benefit to have a 
meteorological office in London, where two or three 
men spend their labour in learning the weather all 
over the country by means of the telegraph, and thus 
enable us to judge, as far as possible, of the weather 
which is coming. This is a good case of the multi- 
plication of services. 

28. The Multiplication of Copies is also a 



IV. 1 DIVISION OF LABOUR. 37 



means of increasing immensely the produce of labour. 
When the proper tools and models for making a thing 
are once provided, it is sometimes possible to go on 
multiplying copies with little further trouble. To cut 
the dies for striking a medal or coin is a very slow and 
costly work ; but, when once good dies are finished, it 
is easy to strike a great many coins with them, and the 
cost of the striking is very small. The printing press, 
however, is the best case of multiplication of copies. 
To have the whole of Shakespeare's Plays copied out 
by a law stationer would cost more than two hundred 
pounds, and every new copy would cost as much as 
the first. Before the invention of printing, books used 
to be thus copied out, and manuscript books were 
therefore very expensive, besides being full of mis- 
takes. The whole of Shakespeare's Plays can now be 
bought for a shilling ; and any one of the Waverley 
Novels can be had for sixpence. It may cost several 
hundred pounds to set up the type for a large book and 
stereotype it ; but when this is once done, hundreds of 
thousands of copies can be struck off, and the cost of 
each copy is little more than that of the paper and the 
binding. 

Almost all the common things we use now, such as 
ordinary chairs and tables, cups and saucers, teapots, 
spoons and forks, &c., are made by machinery, and are 
copies of an original pattern. A good chair can be 
bought for five shillings or less, but if you wanted to 
have a chair made of a new pattern, it would cost 
perhaps five or ten times as much. 

29. Personal Adaptation. A further advantage 
of the division of labour is that, when there are many 
different trades, every person can choose that trade 
for which he is best suited — the strong healthy man 
becomes a blacksmith ; the weaker one works a loom 
or makes shoes ; the skilful man learns to be a watch- 
maker ; the most ignorant and unskilful can find work 
in breaking stones or mending the hedges. Each man 
will generally work at the trade in which he can get 



38 FRIMER OF POLITICAL ECONOMY. [ch. 

the best wages, and it is an evident loss of skill if the 
artisan should break stones or sweep the streets. Now, 
the greater the division of labour and the more exten- 
sive factories become, the better chance there is for 
finding an employment just suited to each person's 
powers ; clever workmen do the work which no one 
else can do ; they have common labourers to help 
them in things which require no skill; foremen plan 
out the work, and allot it to the artisans ; clerks, who 
are quick at accounts, keep the books, and pay and 
receive money ; the manager of the factory is an 
ingenious experienced man, who can give his whole 
attention to directing the work, to making good bar- 
gains, or to inventing improvements in the business. 
Every one is thus occupied in the way in which his 
labour will be most productive and useful to other 
people, and at the same time most profitable to 
himself. 

30. Local Adaptation. Lastly, the division of 
labour allows of local adaptation — that is, it allows 
every kind of work to be done in the place most suit- 
able for it. We have already learnt (sec. 22, p. 29) 
that each kind of labour should be carried on where it 
is most productive; but this cannot be done unless 
there be division of labour — so that while the French 
grow wine, weave silk, or make articles de Paris, they 
buy the cottons of Manchester, the beer of Burton-on- 
Trent, or the coals of Newcastle. When trade is free, 
and the division of labour is perfect, each town or 
district learns to make some commodity better than 
other places : watches are made in Clerkenwell ; steel 
pens in Birmingham ; needles at Redditch ; cutlery at 
Sheffield ; pottery at Stoke ; ribbons at Coventry ; glass 
at St. Helen's ; straw bonnets at Luton ; and so forth. 

It is not always possible to say exactly why certain 
goods are made better in one place — for instance, silks 
in Lyons — than anywhere else; but so it often is, 
and people should be left as free as possible to buy the 
goods they like best. Commodities are manufactured 



IV. 1 Dl VISION OF LA BO UR. 



39 



in order that they may produce pleasure and be use- 
ful, not, as we shall see, in order that labourers may be 
kept hard at work. Now, when trade is left free it 
gives rise to division of labour, not only between town 
and town, county and county, but between the most 
distant nations of the earth. Thus is created what 
may be called the territorial division of labour. 
Commerce between nation and nation is not only one of 
the best means of increasing wealth and saving labour, 
but it brings us nearer to the time when all nations 
will live in harmony, as if they were but one nation. 

31. The Combination of Labour. We now 
see what great advantages arise from each man learn- 
ing a single trade thoroughly. This is called the divi- 
sion of labour, because it divides up the work into a 
great many different operations ; nevertheless, it leads 
men to assist each other, and to work together in 
manufacturing the same goods. Thus, in producing a 
book, a great many trades must assist each other : 
type-founders cast the type; mechanics make the 
printing press ; the paper is manufactured at the paper 
works ; printers' ink is prepared at other works ; the 
pubhshers arrange the business ; the author supplies 
the copy ; the compositors set up the type ; the reader 
corrects the proofs ; the pressmen work off the printed 
sheets ; then there are still the bookbinders, and the 
booksellers, besides a great many other small trades 
which supply the tools wanted by the principal trades. 
Thus, society is like a very complicated machine, in 
which there is a great number of wheels, and wheels 
within wheels ; each part goes on attending to its own 
business, and doing the same work over and over again. 
There is what we should call a complex organiza- 
tion (Greek, opyavov, instrument), that is to say, differ- 
ent people and different trades work as instruments of 
each other, all assisting in the ultimate result. 

But it is to be observed that nobody plans out these 
systems of divided labour; indeed few people ever 
know how many trades there are-, and how they are 



40 PRIMER OF POLITICAL ECONOMY. [ch. 

connected together. There are said to be about thirty- 
six distinct kinds of employment in making and putting 
together the parts of a piano ; there are about forty 
trades engaged in watchmaking ; in the cotton business 
there are more than a hundred occupations. But new 
trades are frequently created, especially when any 
new discovery takes place; thus, there are at least 
sixteen diiferent trades occupied in photography, or in 
making the things required by photographers ; and 
railways have produced whole series of employments 
which did not exist fifty years ago. These trades 
arise without any Act of Parliament to make them 
or allow them. There is no law to say how 
many trades there shall be, nor how many people 
shall go into each trade, because nobody can tell 
what will be wanted in future years. These things 
are arranged by a kind of social instinct. Each 
person takes up the kind of work which seems to suit 
him and to pay him best at the time. 

Another and a totally different kind of combination 
of labour arises when men arrange to assist each other 
in doing the same work. Thus, sailors pulling at the 
same rope combine their labour together ; other in- 
stances are, carrying the same ladder, rowing the same 
boat, and so forth. In this case there is said to be 
simple combination of labour, because the men 
do the same sort of work. When the men have diiferent 
operations to perform, there is said to be complex 
combination of labour, as when one man points a 
pin and another makes the head. On board a ship 
there is both simple and complex combination. When 
several men work at the same capstan the combination 
is simple, because one man does exactly the same as 
the others. But the captain, mate, steersman, carpen- 
ter, boatswain, and cook work together in complex 
combination, since each attends to his OAvn proper 
duties. Similarly, in a company of soldiers the privates 
act together in simple combination, but the officers of 
diff'erent ranks have distinct duties to perform, so that 



iv.] DIVISION OF LABOUR. 41 

the combination becomes complex. Men who thus 
assist each other are usually able to do far more work 
than if they acted separately. 

32. Disadvantages of the Division of 
Labour. There are certainly some evils which 
arise out of the great division of labour now ex- 
isting in civilised countries. These evils are of no 
account compared with the immense benefits which 
we receive ; still it is well to notice them. 

In the first place, division of labour tends to 
make a man's po'wer narro^v and restricted; 
he does one kind of work so constantly, that he has 
no time to learn and practice other kinds of work. 
A man becomes, as it has been said, worth only the 
tenth part of a pin ; that is, there are men who know 
only how to make, for instance, the head of a pin. 
In the time of the Romans it was said, ne stitor ultra 
ci^epidam^ let not the shoemaker go beyond his last. 
When a man accustomed only to making pins or 
shoes goes into the far west states of America, he 
finds himself unfitted for doing all the kinds of hard 
work required from a settler. The poor peasant from 
Norway or Sweden, who seems at first sight a less in- 
telligent man, is able to build his own house, till 
the ground, tend his horse, and in a rough way, 
make his own carts, implements, and household furni- 
ture. Even the Red Indian is much better able to 
take care of himself in a new country than the edu- 
cated mechanic. The only thing to be said is that 
the skilled shoemaker, or mechanic of whatever sort, 
must endeavour to keep to the trade which he has 
learnt so well. It is a misfortune both for himself 
and for other people if he is obliged to undertake work 
which he cannot do so well. 

A second disadvantage of the division of labour is 
that trade becomes very complicated, and 
when deranged the results are ruinous to 
some people. Each person learns to supply only 
a particular kind of goods, and if change of fashion 



42 PRIMER OF POLITICAL ECONOMY. [cH. 

or any other cause leads to a falling off in the de- 
mand for that kind of goods, the producer is left in 
poverty, until he can learn another trade. At one 
time the making of crinoline skirts for ladies was a 
large and profitable trade ; now it has ceased almost 
entirely, and those who learnt the business have had 
to seek other employments. But each trade is gener- 
ally well supplied with hands perfectly trained to the 
work, and it is very difficult for fresh workmen, 
especially when old, to learn the new work, and 
compete with those who have long practised it. In 
some cases this has been successfully done ; thus the 
Cornish miners, when the mines in Cornwall were no 
longer profitable, went into the collieries, where more 
hewers of coal were much wanted. But, generally 
speaking, it is very difficult to find a new employ- 
ment in England, and this is a strong reason why 
trades-unions should make no objection to new men en- 
tering a trade to which they have not been brought up. 
The colliers tried to keep the Cornish miners out 
of the coal pits. In order to keep their own wages 
as high as possible they would let other men starve. 
But this is a very selfish and hurtful way of acting. 
If every trade were thus to try and keep all other 
people away, as if the trade were their own property, 
there would constantly be a number of unfortunate 
people brought to the workhouse through no fault of 
their own. It is most important, therefore, to main- 
tain a man's right to do whatever kind of work he can 
get. It is one of the first and most necessary rights 
of a labourer to labour in any honest way he finds 
most profitable to himself Labour must be free. 



CHAPTER V. 

CAPITAL. 

33. What is capital ? We will now endeavour 
to understand the nature of the third requisite 



v.] CAPITAL. 43 

of production, called capital, which con- 
sists of wealth used to help us in pro- 
ducing more wealth. All capital is wealth, 
but it is not true that all wealth is capital. If a man 
has a stock of food, or a stock of money with which 
he buys food, and he merely lives upon this without 
doing any labour, his stock is not considered to be 
capital, because he is not producing wealth in the 
meantime. But if he is occupied in building a house, 
or sinking a well, or making a cart, or producing any- 
thing which will afterwards save labour and give utility, 
then his stock is capital. 

The great advantage of capital is that it enables us 
to do work in the least laborious way. If a man 
wants to convey water from a well to his house, and 
has very little capital, he can only get a bucket and 
carry every bucket-full separately ; this is very labori- 
ous. If he has more capital, he can get a barrel and 
wheel it on a barrow, which takes off a large part of 
the weight ; thus he saves much labour by the labour 
spent upon the barrel and barrow. If he has still 
more capital his best way will be to make a canal, or 
channel, or even to lay a metal pipe all the way from 
the well to his house ; this costs a great deal of labour 
at the time, but, when once it is made, the water will 
perhaps run down by its own weight, and all the rest 
of his life he will be saved from the trouble of carry- 
ing water. 

34. Fixed and Circulating Capitals. Capital 
is usually said to be either fixed or circulating capital, 
and we ought to learn very thoroughly the difference 
between these two kinds. Fixed capital consists 
of factories, machines, tools, ships, railways, docks, 
carts, carriages, and other things, which last a long 
time, and assist work. It does not include, indeed, all 
kinds of fixed property. Churches, monuments, ])ic- 
tures, books, ornamental trees, &c., last a long time, 
but they are not fixed capital, because they are not 
used to help us in producing new wealth. They may 



44 PRIMER OF POLITICAL ECONOMY. [cii. 

do good, and give pleasure, and they form a part 
of the wealth of the kingdom ; but they are not 
capital according to the usual employment of the 
name. 

Circulating capital consists of the food, 
clothes, fuel, and other things which are re- 
quired to support labourers while they are 
engaged in productive work. It is called cir- 
culating because it does not last long ; potatoes and 
cabbages are eaten up, and a new supply has to be 
grown; clothes wear out in a few months or a year, 
and new ones have to be bought. The circulating 
capital, which is in the country now, is not the same 
circulating capital which was in the country two years 
ago. But the fixed capital is nearly the same : some 
factories may have been burnt or pulled down ; some 
machines may have become worn out, and have been 
replaced by new ones. But these changes in fixed 
capital are comparatively few ; whereas the whole or 
nearly the whole of the circulating capital is changed 
every year or two. 

But the fact is that we cannot distinguish so easily 
as we may seem to do between fixed and circulating 
capitals; there may be kinds of capital which are 
neither quite fixed nor quite circulating, but some- 
thing between the two. Flour is soon eaten up, and 
is circulating capital. A flour mill lasts fifty years, 
perhaps, and may certainly be called fixed capital ; a 
flour sack lasts about ten years on an average. Is 
such a sack fixed or circulating capital ? It seems to 
me difficult to say. In the case of a railway, the coal 
and oil wanted for the engine are used up at once, 
and are clearly circulating capital; the railway wagons 
last about ten years, the locomotive engines twenty 
years or more ; the railway stations last at least thirty 
years ; there is no reason why the bridges and 
tunnels and embankments should not last hun- 
dreds of years with proper care. Thus we see that 
capital is altogether a question of time, and 



V] CAPITAL. 45 

we must say that capital is more fixed as it 
endures or continues useful a longer time; 
it is more circulating in proportion as it is 
sooner worn out or destroyed, and thus re- 
quires to be more frequently replaced. 

35. How Capital is obtained. Capital is 
the result of saving or abstinence, that is, it 
can only be obtained by working to produce wealth, 
and then not immediately consuming that wealth. 
The poor savage who has to labour hard every day 
for fear that he may have to go without food, has 
no capital; but when he has food in hand, and can 
employ himself in making bows and arrows to facili- 
tate the capture of animals, he is investing capital in 
the bows and arrows. Whenever we work in this way 
for a future purpose, we are living on capital and 
investing it. The abstinence (Latin, abs, from, and 
tenens, holding) consists in holding off from the enjoy- 
ment of something which we have produced, or might 
produce with the same labour. To save is to keep 
something whole or untouched for future use ; we 
save it as long as we do not consume it. If I have a 
stock of flour and eat it up, there is an end of the 
flour, and I cannot be said to save that. But if, 
while eating the flour, I am engaged in making a plough 
or a cart, or any other durable thing which will help 
me in production, I have turned one form of capital 
into another form. I might have eaten the flour in 
idleness, in which case it would not have been capital. 
But, while eating it, I worked for a future purpose. 
In so doing I am said to invest capital, which 
means to turn circulating into fixed capital, 
or less durable into more durable capital. 
Capital, accordingly, is invested for longer or shorter 
periods according to the durability of the form in 
which it is invested (Latin, m, on, and vesttre, to 
clothe). A good plough will perhaps last twenty 
years ; all through that time the owner should be 
getting back by its use the benefit of the labour and 



^6 PRIMER OF POLITICAL ECONOMY. [cH. 

capital spent in making it. When it is worn out, he 
ought to have all the capital it cost paid back, with 
some increase or interest. Capital invested in railway 
wagons should pay itself back during the ten years 
that the wagons last on an average. 

The capital invested in any work may always be 
said to consist of wages or what is bought with wages. 
Thus the capital invested in railways really consisted 
of the food, clothes, and other commodities consumed 
by the labourers who made the railways. It is true 
that tools also were needed as well as the iron rails, 
sleepers, bricks, and other materials required for the 
work. But as these things had previously been made 
by labour, we may consider that the capital really 
invested in them was the wages of the labourers who 
had already made them. Thus, when we go far 
enough back, we always find that the capital 
invested consisted of the maintenance of 
labourers. 

36. Investment of Capital. We have two 
things to consider with regard to the investment of 
capital, firstly, the quantity of the capital, and 
secondly, the length of time for w^hich it is 
invested. The same quantity of capital will keep 
more or less men at work, according as it is invested 
for shorter or longer periods. A man in growing 
potatoes only needs to wait for the result of his labour 
during one year on an average. If his food and 
clothing during one year cost thirty pounds, then 
capital worth thirty pounds is sufficient to keep him at 
work in this way. Three men cultivating potatoes 
will of course require three times as much capital, or 
ninety pounds worth; ten men will need three hundred 
pounds worth, and so on in proportion. But in grow- 
ing vines it is necessary to wait several years after the 
vines are planted before they begin to bear. Suppose 
it to require five years waiting, then the labourer will 
want .5 X 30, or one hundred and fifty pounds worth of 
capital before he can grow vines. Three vine-growers 



v.] CAPITAL, ^'j 

will want 3 x 5 x 30, or four hundred and fifty pounds 
worth of capital; ten men, 10 x 5 x 30, or fifteen hun- 
dred pounds worth, and so on in proportion. Thus 
we see clearly that the capital required in any kind of 
industry is proportional to the number of men em- 
ployed, and also to the length of time for which the 
capital remains locked up, or invested on the average. 
But there is no fixed proportion whatever between the 
number of labourers and the capital they require — it 
entirely depends upon the length of time in which the 
capital is turned over, that is, invested, and got back 
again. A poor savage manages to live on a few days' 
capital in hand; a potato grower on one year's capital. 
On a modern farm in which many durable improvements 
are made, the quantity of capital required is very much 
greater. To employ men upon a railway requires 
immense capital, because so much of it is sunk in a 
very fixed and durable form in the embankments, 
tunnels, stations, rails, and engines. 

37. Labour cannot be Capital. It is not un- 
common to hear it said that labour is the poof 
man's capital; and then it is argued that the poor 
man has just as much right to live upon his capital as 
the rich man upon his. And so he has, if he can do 
it. If a labourer can go and produce any kind of 
wealth, and exchange it for food and necessaries, of 
course he may do so. But, as a general rule, he 
cannot do this without working for a length of time, 
>yaiting till the produce is finished and sold. In ordei 
to do this he wants something more than his labour, 
namely, his food in the meantime, besides materials 
and tools. These form the required capital, and there 
is no good in calling labour capital when it is really 
quite a different thing. At other times I have heard 
it said that land is capital, intelligence is 
capital, and so forth. These are all misleading 
expressions. The intended meaning seems to be that 
some people live upon what they get from land, or 
from intelligence, as other people live upon what they 
5 



48 PRIMER OF POLITICAL ECONOMY. [CH. 

get as interest upon capital. Nevertheless, land is not 
capital, nor is intelligence capital. Production requires, 
as we have seen, three distinct things, namely, land, 
labour, and capital ; and there is much harm in con- 
fusing things together by giving them the same name 
when they are not the same thing. 

CHAPTER VI. 
DISTRIBUTION OF WEALTH. 

38. How Wealth is Shared. We have learned 
what wealth is, how it is to be used, and how it may 
be produced in the greatest quantities, with the least 
possible labour, but we have yet to enter on the more 
difficult parts of our subject. We must now try to 
make out how wealth is shared among those who have 
a hand in producing it. The requisites of production, 
as we have se_'n, are land, labour, and capital; if these 
were all supplied by the same person, no doubt the 
produce ought all to belong to him, with the exception 
of what is taken by the government as taxes. But, in 
a state of society such as exists at present, the labourer 
seldom owns all the land and capital he uses ; he 
goes to work on another man's farm, or in another 
man's factory ; he lives in another man's house, and 
often eats another man's food ; he derives benefits from 
other men's inventions, and discoveries; and he uses 
roads, railways, public buildings, &c., furnished at the 
cost of the community. 

The production of wealth, therefore, depends not 
on the will and exertions of a single man, but on the 
proper bringing together of land, labour, and capital, 
by different persons and classes ot persons. These 
different persons must have their several shares of the 
wealth produced ; if they furnish something requisite 
for producing, they can make a bargain and ask for 
more or less of the produce. But it is not mere 
chance or caprice which governs the sharing 



VI.] DISTRIBUTION OF WEALTH. 49 

of wealth, and we have to learn the natural 
laws according to which the distribution 
takes place. We must ascertain how it is that many 
of the population get so little, and some so much. 
Men work very hard on a farm and raise crops ; the 
landlord comes and takes away a large part as rent, 
so that the labourers have barely enough to live upon. 
When we are able to understand why the labourer gets 
so little at present, we shall see, perhaps, how he might 
manage to get more, but in any case we shall see that 
it is due in great part to the laws of nature. 

The part of our subject which we are now going 
to consider is called the distribution of wealth, 
because it teaches us how the wealth produced is 
distributed (l^atin, dis, apart, and tribuei-e, to allot) 
between the labourers, the owners of land, the owners 
of capital, and the government. The part which the 
labourer gets is called wages ; the share of the land 
owner is called rent ; that of the capitalist is inter- 
est ; and the government take taxes. We may 
say that, as a general rule, the produce of work is 
divided into four shares, which may be thus shown : 
produce - wages + rent + interest + taxes. 

39. The Labourer's Share — Wages. It 
ought to be carefully remembered that the names 
wages, rent, and interest, as here used, do not 
exactly agree in meaning with the names as we em- 
ploy them in common life. The wages paid to 
workmen are sometimes more than wages, being 
partly interest ; the rent almost always consists partly 
of interest ; and what is called interest may in some 
degree be really wages or rent. 

By wages we mean, in political economy, nothing 
but what goes to pay for the trouble of labour. But 
many workmen own their own tools ; masons have a 
boxful of chisels, mallets, rules, &c. ; carpenters often 
require twenty or thirty pounds' worth of planes and 
other implements ; a pianoforte maker sometimes owns 
seventy pounds' worth of tools; even gardeners re- 
12* 



,50 PRIMER OF POLITICAL ECONOMY. [ch. 

quire spades, rakes, a barrow, scythe, or perhaps a 
mowing machine and a roller. Now, all such tools 
represent so much invested capital, and a certain 
amount of interest must be paid for this capital. A 
pianoforte maker might expect five pounds a year as 
interest upon the cost of his tools. But true wages, 
are what remains after allowance has been made for 
such interest, and it would be proper to subtract also 
what is paid to the government as taxes. 

40. The Land Owner's Share — Rent, the 
second part of the produce, means, in political economy, 
what is paid for the use of a natural agent, whether 
land, or beds of minerals, or rivers, or lakes. The 
rent of a house or factory is, therefore, not all rent in 
our meaning of the word. Capital has been spent in 
building the house or factory, and interest must be 
paid on this capital ; we must then deduct this interest 
from what is commonly called the rent, before we can 
find out what is really rent. The ground rent of a 
house is the rent paid for the ground on which it 
stands, and this will be more nearly the true rent, 
apart from interest. Similarly, the ordinary rent of a 
farm will usually include interest upon the capital 
spent on the farm buildings, roads, gates, fences, 
drains, and other improvements. We shall afterwards 
learn exactly how true rent arises. 

41. The Capitalist's Share. The proper 
share of the capitalist is interest ; but this is usually 
a good deal less than what actually remains in the 
hands of the capitalist. Business is generally carried 
on by some capitalist who rents a piece of land, 
builds a factory, purchases machinery, and then em- 
ploys men to work the machinery, paying them wages. 
The capitalist himself often acts as manager, and 
works every day almost as long as the workmen. 
When the goods are finished and sold, he keeps the 
whole of the money he gets for them ; but then he 
has already paid out a large sum as wages, while the 
goods were being made , another part goes to pay the 



VI.] DISTRIBUTION OF WEALTH. 51 

rent of the land which he has hired. Having struck 
off these portions, there ought to remain a certain 
profit, part of which he uses to hve upon. But 
even this profit consists of more than interest upon 
his capital. It should include also a payment for 
his labour in superintending the business. The mana- 
ger of a factory may seldom touch the cotton, flax, 
iron, or other material, which is manufactured; 
nevertheless, he works with his head and his pen, 
calculating the prices at which he can produce goods, 
inquiring where he can buy the materials most 
cheaply, choosing good workmen, keeping the ac- 
counts straight, and so on. Severe mental labour is 
really far more difficult and exhausting than manual 
labour ; and in raising up a good business, and carry- 
ing it through times of danger, a manager has to 
undergo great anxiety and mental fatigue. Thus, it 
is necessary that a successful manager should receive 
a considerable share of the produce, so as to make it 
worth his while to give this labour. His share is called 
the wages of superintendence, and, although 
usually much larger than the share of a common 
labourer, it is really wages of the same nature. 

Another part of the capitalist's so-called profit 
ought to be laid aside as recompense for risk. 
There is always more or less uncertainty in trade, 
and even the most skilful and careful manager may 
lose money by circumstances over which he has no 
control. Sometimes, after building a factory, the 
demand for the goods which he is going to produce 
falls off; sometimes the materials cannot be bought; 
perhaps it is discovered, when too late, that the 
factory has been built in an unsuitable phce ; occa- 
sionally, too, the workmen are discontented, and 
refuse to work for such wages as the capitalist can 
afford to pay. Now, whenever any of these mis- 
takes or misfortunes happen, it is the capitalist who 
mainly suffers, because he loses a great deal of 
money, on which he might otherwise have lived 



52 PRIMER OF POLITICAL ECONOMY. [CH. 

comfortably. Sometimes men who have worked 
hard all their lives, and grown rich by degrees, lose 
all their wealth again in the end, by some error of 
judgment or by some unfortunate event due to no 
fault of their own. 

A capitalist, then, must have some inducement for 
running into these disagreeable risks ; by lending 
his capital to the government he might get interest 
for it, and be nearly sure not to lose. If, then, he 
puts it into trade, and runs the risk of loss, he must 
have a recompense for the risk. This ought to be 
a.t least enough to make the profits of the success- 
ful business balance the losses of the unfortunate 
ones, so that on the average capitalists will get the 
interest of capital and the wages of superintendence 
free from loss. We may say, then, that — 

profit = wages of superintendence 

+ interest + recompense for risk. 

42. About Interest. That which is paid for the 
use of capital altogether apart from what is due for 
the trouble and risk of the person conducting the 
business, is called interest. This interest, of course, 
will be greater or less according as the amount of 
capital is greater or less ; it will also be greater or 
less according as the capital is employed for a longer 
or shorter time. Thus the rate of interest is always 
stated in proportion to the capital sum and to the 
time ; five per cent. pe7' annum means that, for every 
hundred pounds of capital, five pounds are paid 
during every year in which the capital is used, and 
in the same proportion for longer or shorter times. 

The rates of interest actually paid in business vary 
very much, from one or two per cent, up to fifty per 
cent, or more. When the rate is above five or six per 
cent, it will be to some extent not true interest, but 
compensation for the risk of losing the capital alto- 
gether. To learn the true average rate of interest, we 
must inquire what is paid for money lent to those who 
are sure to pay it back, and who give property in 



VI.] DISTRIBUTION OF WEALTH. 53 

pledge, so that there may be no doubt about the 
matter. It seems probable that the true average 
rate of interest in England is at present about four 
per cent, but it varies in different countries, being 
lower in England and Holland than anywhere else. 
In the United States it is probably six or seven per cent. 
The most important fact about interest is that it is 
the same in one business as in another. The 
rates of profit differ very much, it is true, but this is 
because the labour of superintendence is different, or 
because there is greater risk in one trade than another. 
But the true interest is the same, because capital, be- 
ing lent in the form of money, can be lent to one 
trade just as easily as to another. There is nothing 
in circulating capital which fits it for one trade more 
than another : accordingly it will be lent to that trade 
which offers ever so little more interest than other 
trades. Thus there is a constant tendency to 
the equality of interest in all branches of 
industry. 

CHAPTER VII. 

WAGES. 

43. Money Wages and Real Wages. Wages, 
as we have already learnt, are the payments received 
by a labourer in return for his labour. It does not 
matter whether these payments are received daily, 
weekly, monthly, quarterly, or yearly. A day gardener 
is, perhaps, paid every evening ; an artisan is usually 
paid on Saturday or Friday night, or sometimes fort- 
nightly ; clerks receive their salaries monthly ; mana- 
gers, officers, secretaries, and others, are paid quarterly, 
or sometimes half-yearly. When the wages are paid 
monthly, or at longer intervals, they are generally 
called salary (Latin, salarm?n, money given to 
Roman soldiers for salt) ; but if the salary is paid 
for labour and nothing else, it is exactly the same in 
nature as wages. 



54 PRIMER OF POLITICAL ECONOMY. [ch. 

I said, in the last chapter, that wages consist of a 
share of the produce of labour, land, and capital ; in 
the preceding paragraph, I have been saying that it 
consists of payments. Here arises one of the great 
difficulties of our subject. As a matter of fact, the 
wages received by labourers, in the present day, con- 
sist almost always of money. A person working in a 
cotton mill produces cotton yarn ; but he does not 
receive at the end of the week so much cotton yarn ; 
he receives so many shillings. This is much more 
convenient ; for if the labourer received cotton yarn, 
or any other commodity which he produces, he would 
have to go and sell it in order to buy food and clothes, 
and to pay the rent of his house. Instead, then, of 
receiving an actual share of the produce, he receives 
from the capitalist as much money as is supposed to 
be equal in value to his share. 

Now, we shall see that it is requisite to distinguish 
between money wages and real wages. What 
a labourer really works for is the bread, clothes, beer, 
tobacco, or other things which he consumes; these 
form the real wages. If he gets more of these, it does 
not matter whether he gets more or less money wages; 
he cannot eat money, or use it in any way except to 
spend it at shops. If corn or cotton becomes dearer, 
the wages of every workman are really lessened; 
because he can buy less corn or cotton with his money 
wages. On the other hand, everything which makes 
goods cheaper, increases the real wages of workmen ; 
because they can get more of the goods in exchange 
for the same money wages. People are accustomed 
to think far too much about the number of shillings 
they get for a day's work ; they fancy that, if they 
get 25 per cent, more money wages, they must be 25 
per cent, more wealthy. But this is not necessarily 
the case ; for if the prices of goods on the average 
have also risen 25 per cent., they will be really no 
richer nor poorer than before. 

We now begin to see that to increase the produc- 



VII.] WAGES. 55 

tiveness of labour is really the important thing for 
everybody. For if anything, such as cotton cloth, 
can be made with less labour, it can be sold more 
cheaply, and everybody can buy more of it for the 
same money, and thus be better clothed. If the same 
were the case with other goods, so that linen, stock- 
ings, boots, bricks, houses, chairs, tables, clocks, books, 
&c., were all made in larger quantities than before, 
with the same labour, everybody in the country would 
be better supplied with the things which he really 
wishes to have. 

It is certain that a real increase of wages to 
the people at large is to be obtained only by 
making things cheaply. No doubt a tradesman 
gains sometimes when the goods he deals in become 
dearer, but to the extent that they are dearer, all 
consumers of the goods lose, because they can enjoy 
less comforts and necessaries. But, if goods are made 
cheaply, all consumers gain thereby, and, all people 
being consumers, all gain so far as they use the 
cheapened articles. Nor does it follow that artisans 
and tradespeople suffer by the cheapening of goods. 
If, owing to some invention, much greater quanti- 
ties are made with the same labour, the artisan 
will probably be able to sell his share of the produce 
for more than before, that is, his wages will rise instead 
of falling by the cheapening of the produce. The 
tradesman, again, may gain less on each separate 
article that he sells, but he may sell so much more 
than before, that his total profits may be increased. 
The result to which we come is, then, that all 
increase of produce, and cheapening of goods 
tends to the benefit of the public, and this is 
the true way in which people are made 
richer. 

44. How Differences of Wages arise. It is 
very important to understand rightly the reasons of the 
great differences which exist between the rates of 
wages paid in different occupations. Some kinds of 



56 PRIMER OF POLITICAL ECONOMY. [ch. 

labourers are paid a hundred or even a thousand times 
as much for a day's work as others, and it may seem 
very unfair that there should be such great differences. 
We must learn to see that this is the necessary result 
of the various characters and abilities of persons, 
partly arising from the actual strength of mind and 
body with which they were born, partly from the 
opportunities of education and experience which they 
have happened to enjoy. We are often told that all 
men are born free and equal ; however this may be in 
a legal point of view, it is not true in other ways. 
One child is often strong and stout from its earliest 
years ; another weakly and unfit for the same exertion. 
In mind there are still more remarkable differences. 

The rates of wages in different employments are 
governed by the laws of supply and demand 
which we shall afterwards consider. Just as goods 
rise in price when there is little in the market and 
much is wanted, so the price of men's labour rises 
when much of any particular kind is wanted and little 
is to be had. It does not matter much whether we 
speak of demand for goods or demand for the labour, 
which is necessary to make the goods. If more things 
of a certain sort are wanted, then more men able to 
make them must be found. If I buy an aneroid baro- 
meter, I use up the labour of a man able to make such 
a barometer; if many people take a fancy to have 
aneroid barometers, and only a few workmen have the 
necessary skill to make them, they can ask a high price 
for their labour. It is true that people buying baro- 
meters do not usually pay the workmen for making 
them; a man with capital gets the barometers made 
beforehand and puts them in shops ready for sale. 
The capitalist advances the wages of the workmen, 
but this is only for a few weeks or months, and 
according as the demand for barometers is brisk or 
slow, he employs more or fewer workmen. Thus, 
demand for commodities comes to nearly, 
though not quite, the same thing as demand 



VII.] WAGES. 57 

for labour. There is the profit of the capitalist 
to be considered as well ; but, with this exception, 
rates of wages are governed by the same 
laws of supply and demand as the prices of 
goods. 

Anything, then, which affects the numbers of men 
able and willing to do a particular kind of work, affects 
the wages of such men. Thus the principal circum- 
stance governing wages is the comparative numbers of 
persons brought up with various degrees of strength, 
both of body and mind. The greater number of 
ordinary men, while in good health, have sufficient 
strength of arms and legs to do common work ; the 
supply of such men is consequently very large, and, 
unless they can acquire some peculiar knowledge or 
skill, they cannot expect high wages. Dwarfs and 
giants are always much less common than men af 
average size ; if there happened to be any work of im- 
portance which could only be done by dwarfs or giants, 
they could demand high wages. Dwarfs, however, are 
of no special use except to exhibit as curiosities ; very 
large strong men, too, are not generally speaking of 
any particular use, because most heavy work is now 
done by machinery. They can, however, still get 
very high wages in hewing coal, or puddling iron, 
because this is work, requiring great strength and 
endurance, which is not yet commonly done by 
machinery. Iron puddlers sometimes earn as much as 
^250 a year. 

It is great skill and knowledge which generally 
enable a man to earn large wages. Rich people like 
to get the best of everything, and thus the few people 
who can do things in the best possible way can ask 
very high prices. Almost any one can sing badly ; 
but hardly any one can sing as well as Mr. Sims 
Reeves : thus he can get perhaps ;!^2o or ;£$o for 
every song which he sings. It is the same with the 
best artists, actors, barristers, engineers. An artist is 
usually his own capitalist, for he maintains himself dur- 



58 PRIMER OF POLITICAL ECONOMY. [ch. 

ing many months, or even years, while he is painting a 
great picture ; if he succeeds in doing it excellently 
well, he can sell the picture for thousands of pounds, 
because there are many rich people who wish to 
possess good pictures. 

45. Adam Smith on Wages. There are, how- 
ever, various circumstances which cause wages in any 
particular employment to be higher or lower than in 
other employments, and we had better attend to what 
Adam Smith has said on this subject. He mentioned 
five principal circumstances which make up for small 
wages in some occupations, and balance great wages 
in other ones, as follows : 

(i.) The Agreeableness or Disagreeableness 
of the Employments themselves. If an em- 
ployment is in itself comparatively pleasant, it attracts 
many who would not otherwise go into it at the 
current wages. Thus, officers of the army and navy 
are not on the average highly paid ; but there is never 
any difficulty in finding men willing to be officers, 
because the work is thought to be easy, and there is 
honour and power attaching to it. On the other 
hand, a good butcher makes high wages, because his 
business is a greasy one, besides being thought to be 
cruel, and a clever man must be attracted to it by 
good earnings. 

(2.) The Easiness and Cheapness, or the 
Difficulty and Expense of learning the Occu- 
pation. This circumstance always has much import- 
ance, because the greater number of the people are 
poor, and are consequently unable to give their 
children a long good education. Thus, the larger 
part of the young men who grow up are only fit for 
common manual employments, and therefore get low 
wages. To learn a profession, like that of an architect 
or engineer, it is requisite to pay a high premium, and 
become a pupil in a good office, and then there are 
many years to be spent in practising and waiting 
before profit begins to be made. Hence the com- 



VII.] WAGES. 59 

paratively few who succeed in the difficult professions 
gain very high wages. 

(3.) The Constancy or Inconstancy of Em- 
ployment. When a man is sure of being employed 
and paid regularly all the year round, he is usually 
willing on that account to accept a less rate of wages. 
Thus, there is little difficulty in finding men to be 
policemen at about 25 shillings a week ; for though 
they have to go on duty at night, and their 
work is often tedious and disagreeable, yet policemen 
are nearly sure to have employment as long as they 
behave well. A carpenter or bricklayer, on the con- 
trary, is sometimes thrown out of work, and becomes 
anxious as to the means of keeping his family. 
Masons and bricklayers, who cannot work during 
frosty Aveather, ought of course to have higher wages 
during the rest of the year, so as to make up a good 
average. Dock-labourers, who are simply strong men 
without any particular skill, earn large wages when 
trade is brisk and many ships come into the docks ; at 
other times, when trade is slack, or when contrary 
winds keep ships out of port, they often fall into 
destitution through want of employment. 

(4.) The Small or Great Trust which must 
be reposed in those who exercise the Em- 
ployments. This circumstance considerably affects 
the supply of people suitable for certain occupations. 
A man cannot expect to get employment in a bank, or 
in a jeweller's shop, unless he has a good character. 
Nothing is more difficult than for a person convicted 
of dishonesty to find desirable employment. Thus, a 
good character is often worth a great deal of money. 
Honesty, indeed, is so far common that it does not 
alone command high wages ; but it is one requisite. 
The cleverest man would never be made the manager 
of a large business, if there was reason to think that 
he had committed fraud. 

(5.) Lastly, The Probability or Improbability 
of Success in Employments greatly affects 
6 



So PRIMER OF POLITICAL ECONOMY. [CH. 

the Wages of those who succeed. In some 
cases, a man can hardly avoid succeeding ; if he once 
enUsts, he is made into a soldier whether he likes it 
or not. Almost all, too, who become clerks in banks, 
comiting-houses, or public offices, can succeed in 
doing some of the work required in such offices. 
Accordingly clerks are seldom highly paid. But of 
those who become barristers, only a few have the 
peculiar knowledge, tact, and skill required to make 
them successful ; these few make very large gains, 
and the unsuccessful men have to seek for other 
employments. 

Some occupations are very badly paid, because 
they can be taken up by men who fail in other work. 
Frequently a person who has learnt a trade or profes- 
sion finds that he is unfit for it ; in other cases, there 
is a failure in the demand for a commodity, which 
obliges its manufacturers to seek other work. Such 
people are usually too old and too poor to begin again 
from the beginning, and learn a new difficult trade. 
Thus they have to take to the first work they can do. 
Educated men who have not been successful become 
secretaries, house-agents, insurance-agents, small wine 
merchants, and the like. Uneducated men have to 
drive cabs, or go into the army, or break stones; poor 
women become seamstresses, or go out charing. 
Here again we see the need of leaving everybody at 
perfect liberty to enter any trade which he can manage 
to carry on ; it is not only injurious to the public, but 
it is most unfair to people in misfortune, if they are 
shut out of employments by the artificial restrictions 
of those who already carry on those employments. 

46. What is a Fair Day's Wages? It is a 
favourite saying that a man should have a fair 
day's wages for a fair day's work; but this 
is a fallacious saying. Nothing, at first sight, 
can seeni more reasonable and just ; but when you 
examine its meaning, you soon find that there is no 
real meaning at all. It amounts merely to saying, that 



VII.] WAGES. 6 1 

a man ought to have what he ought to 
have. There is no way of deciding what is a fair 
day's wages. Some workmen receive only a shilling 
a day ; others two, three, four, or five shillings ; a few 
receive as much as ten, or even twenty shillings a 
day; which of these rates is fair? If the saying 
means that all should receive the same fair wages, 
then all the different characters and powers of men 
would first have to be made the same, and exactly 
equalised. We have seen that wages vary according 
to the laws of supply and demand, and as long as 
workmen differ in skill, and strength, and the kind of 
goods they can produce, there must be differences of 
demand for their products. Accordingly, there is no 
more a fair rate of wages than there is a fair price of 
cotton or iron. It is all a matter of bargain ; he who 
has corn or cotton or iron or any other goods in his 
possession, does quite right in selling it for the best 
price he can get, provided he does not prevent other 
people from selling their goods as they think best 
So, any workman does quite right in selling his labour 
for the highest rate of wages he can get, provided that 
he does not interfere with the similar right of other 
workmen to sell their labour as they like. 



CHAPTER VIII. 

TRADES-UNIONS. 

47. The Purposes of Trades-Unions. Work- 
ing-men commonly think that the best way to raise 
their earnings is to form trades-unions, and oblige 
their employers to pay better wages. A trades- 
union is a society of men belonging to any 
one kind of trade, who agree to act together 
as they are directed by their elected council, 
and Avho subscribe money to pay the ex- 
penses. Some trades-unions are very different from 



62 PRIMER OF POLITICAL ECONOMY. [ch. 

Others, and they are not all well conducted nor all 
badly conducted, any more than people are all well 
behaved or all badly behaved. Moreover, the same 
trades-union often does different kinds of business. 
Usually they act as benefit or friendly societies, that 
is to say, if a member of a trades-union pays his sub- 
scription of say one shilling weekly, together with an 
entrance-fee and other small payments, he has a right, 
after a little time, to receive say twelve shillings a 
week in case of illness ; he gets back the value of his 
tools if they should happen to be burnt or lost ; when 
thrown out of work he will enjoy say ten shillings a 
week for a certain length of time ; if he is so unfor- 
tunate as to be disabled by accident^ he receives a 
good sum of money as an accident benefit; and when 
he dies he is buried at the expense of the union. All 
these arrangements are very good, for they insure a 
man against events which are not usually under his 
own control, and they prevent workmen from becom- 
ing paupers. So far as trades-unions occupy them- 
selves in this way, it is impossible not to approve of 
them very warmly. 

Then, again, trades-unions are able to take care of 
their members by insisting that employers shall make 
their factories wholesome and safe. If a single work- 
man were to complain that the workshops were too 
hot, or that a machine was dangerous, or a mine not 
properly ventilated, he would probably not be listened 
to, or would be told to go about his business. But if 
all the workmen complain at once, and let it be 
known that they do not intend to go on working 
unless things are made better, the employer will think 
about the matter seriously, and will do anything that 
is reasonable to avoid disputes and trouble. Every- 
body is justified in taking good care of his own life 
and health, and in making things as convenient to 
himself as possible. Therefore we cannot find fault 
with workmen for discussing such matters among 
themselves, and agreeing upon the improvements they 



VIII.] TRADES-UNIONS. 63 

think right to demand. It is quite proper that they 
should do so. 

But nobody is perfectly wise, and those who have 
not much time to get knowledge, and learn science 
and political economy, will often not see the effects of 
what they demand. They may ask for something 
which is impossible, or would cost so much as to stop 
the trade altogether. In all such matjters, therefore, 
working-men should proceed cautiously, hearing what 
their employers have to say, and taking note especially 
of what the public opinion is, because it is the opinion 
of many who have nothing to lose or gain in the 
matter. 

48. The Regulation of Hours. One of the 
principal subjects of dispute is usually the number of 
hours in the day that a workman should wOrk. In 
some trades a man is paid by the hour or by the work 
done, so that each man can labour a longer or shorter 
time as he prefers. When this is the case, each man 
is the best judge of what suits him, and no trades-union 
ought to interfere. But in factories, generally speak- 
ing, it would not do to let the men come and go 
when they liked ; they must work while the engines 
and machines are moving, and while other men need 
their assistance. Accordingly, somebody must settle 
whether the factory is to work for twelve, or ten, or 
nine, or eight hours a day. The employer would 
generally prefer long hours, because he would get 
more work and profit out of his buildings and 
machines, and he need not usually be on the spot all 
the time himself. It seems reasonable, then, that the 
workmen should have their opinion, and have a voice 
in deciding how long they will work. 

But workmen are likely to be mistaken, and imagine 
that they may get as much wages for nine hours' work 
as for ten. They think that the employer can raise 
the price of his goods, or that he can well afford to 
pay the difference out of his own great profits. But 
if political economy is to be believed, the wages of 



64 PRIMER OF POLITICAL ECONOMY. [ch. 

workmen are really the value of the goods produced, 
after the necessary rent of land and interest of capital 
have been paid. If factories, then, produce less 
goods in nine hours than in ten, as is usually the case, 
there cannot, in the long run, be so much wages to 
receive. On the other hand, as m.achinery is im- 
proved, labour becomes more productive, and it is 
quite right that those who are sufficiently well paid 
should prefer, within reasonable limits, to lessen their 
hours of work rather than increase their earnings. 
This is a matter which depends upon many considera- 
tions, and it cannot be settled in this Primer. What 
I should conclude is, that when workmen want to 
lessen their hours of w^ork, they ought not to ask the 
same wages for the day's work as before. It is one 
thing to lessen the hours of work ; it is another thing 
to increase the rate of wages per hour, and though 
both of these things may be rightly claimed in some 
circumstances, they should not be confused together. 

49. The Raising of Wages. The principal 
object of trades-unions, however, is to increase the 
rate of wages. Working men seem to believe that, if 
they do not take care, their employers will carry off the 
main part of the produce, and pay very low wages. 
They think that capitalists have it all their own way 
unless they are constantly watched, and obliged to 
pay by fear of strikes. Employers are regarded as 
tyrants who can do just as they like. But this is 
altogether a mistake. No capitalists can for more than 
a year or two make unusual profits, because, if they 
do, other capitalists are sure to hear of it, and try to 
do likewise. The result will be that the demand for 
labourers in that kind of trade will increase; the 
capitalists will bid against each other for workmen, 
and they will not, generally speaking, be able to get 
enough without raising the rate of wages. 

There is no reason whatever to think that trades- 
unions have had any permanent effect in raising wages 
in the majority of trades. No doubt wages are now 



VIII.] TRADES-UNIONS, 65 

much higher than they were thirty or forty years ago ; 
but to a certain extent this is only a rise of money wages, 
due to the abundance of gold discovered in California 
and Australia. The rest of the increase can be easily 
accounted for by the great improvements in machinery, 
and the general prosperity of the country. It is 
certain, too, that the increase of wages is not confined 
to those trades which have unions; even common 
labourers who have no unions receive considerably 
more money wages than they did, and domestic ser- 
vants, who never strike in a body, but simply leave 
one place when they can get a better, have raised their 
own wages quite as much as any union could have 
done it for them. 

50. Strikes and Lockouts. Workmen are 
said to strike, that is, to strike work, ^vhen a 
number of them agree together to cease 
\vorking on a certain day for certain em- 
ployers, in order to oblige these employers to pay 
better wages, or in some way to yield to their demands. 
When one or more employers suddenly dismiss their 
workpeople altogether, in order to oblige them to take 
lower wages, or agree to some alteration of work, it 
is called a lockout, and a lockout is nearly the 
same as a strike of the employers. Strikes 
sometimes last for many months, the workmen living 
on what savings they have, and on contributions sent 
to them by workmen or unions in the same or other 
trades. The employers at the same time lose much 
money by their factories standing still, and they some- 
times receive aid from other employers. 

There is nothing legally or morally wrong in a strike 
or lockout when properly conducted. A man, when 
free from promises or contracts, has a right to work or 
not to work, as he thinks best, that is to say, the law 
regards it as beneficial to the country, on the whole, 
that people should be free to do so. Similarly, em- 
ployers are free to work their mills or not as they like. 
Neither employers nor employed, indeed, must break 
13* 



66 PRIMER OF POLITICAL ECONOMY. [ch. 

engagements ; men who have promised to work to the 
end of the week must of course do so ; they are not 
free till their promise is performed. Again, nobody- 
should be allowed suddenly to stop work in a way 
endangering other people. Enginedrivers and guards 
in America sometimes strike when a train is halfway 
on its journey, and leave the passengers to get to the 
next town as they best can. This is little better than 
manslaughter. Neither the owners nor the workmen 
in gasworks, waterworks, or any other establishment 
on which the public depends for necessaries of life, 
should be allowed suddenly to stop work without 
notice. The safety of the public is the first considera- 
tion. The law ought therefore to punish those who 
make such strikes. 

51. The General Effect of Strikes. There is 
not space in this little work to argue the matter out in 
detail, but I have not the least doubt that strikes, 
on the whole, produce a dead loss of wages 
to those who strike, and to many others. 
I believe that if there had not been a strike during the 
last thirty years, wages would now be higher in general 
than they are, and an immense amount of loss and 
privation would also have been saved. It has, in fact, 
been shown by Dr. John Watts of Manchester, in his 
" Catechism of Wages and Capital," that even a suc- 
cessful strike usually occasions loss. He has said, 
" Allowing for accidental stoppages, there will not be 
in the most regular trades above fifty working weeks 
in the year, and one week will therefore represent two 
per cent, of the year. If a strike for four per cent, rise 
on wages succeeds in a fortnight, it will take twelve 
months' work at the improved rate to make up for the 
lost fortnight ; and if a strike for eight per cent, lasts 
four weeks, the workmen will be none the richer at 
the end of twelve months; so that it frequently 
happens that, even when a strike succeeds, another 
revision of wages takes place before the last loss is 
made up ; a successful strike is, therefore, like a sue- 



viii.] TRADES-UNIONS. 67 

cessful lawsuit — only less ruinous than an unsuccessful 
one." If we remember that a large proportion of 
strikes are unsuccessful, in which case of course there 
is simple loss to every one concerned ; that when suc- 
cessful, the rise of wages might probably have been 
gradually obtained without a strike ; that the loss by 
strikes is not restricted to the simple loss of wages, 
but that there is also injury to the employers' business 
and capital, which is sure to injure the men also in the 
end ; it is impossible to doubt that the nett result of 
strikes is a dead loss. The conclusion to which I come 
is that, as a general rule, to strike is an act 
of folly. 

52. Intimidation in Strikes. Those who strike 
work have no right to prevent other workmen from 
coming and taking their places. If there are unem- 
ployed people, able and willing to work at the lower 
wages, it is for the benefit of everybody, excepting the 
strikers, that they should be employed. It is a ques- 
tion of supply and demand. The employer, generally 
speaking, is right in getting work done at the lowest 
possible cost ; and, if there is a supply of labour forth- 
coming at lower rates of wages, it would not be wise of 
him to pay higher rates. 

But it is unfortunately common for those who strike 
to endeavour to persuade or even frighten workmen 
from coming to take their places. This is as much as 
to claim a right to the trade of a particular place, which 
no law and no principle gives to them, A strike is 
only proper and legal as long as it is entirely voluntary 
on the part of all concerned in refusing to work. 
When a striker begins to threaten or in any way pre- 
vent other people from working as they like, he com- 
mits a crime, by interfering with their proper liberty, 
and at the same time injuring the public. Men are 
free to refuse to labour, but it is absolutely necessary 
to maintain at the same time the freedom of other men 
to labour if they like. The same considerations, of 
course, apply to lockouts ; no employer who locks out 



68 PRIMER OF POLITICAL ECONOMY. [ch. 

his workmen has any right to intimidate, or in any way 
to obhge other employers to do the same. No doubt 
voluntary agreements are made between employers, 
and lockouts are jointly arranged, just as extensive 
strikes are arranged beforehand. If any employers 
were to go beyond this and threaten to injure other 
employers if they did not join in the lockout, they 
should be severely punished. But such a case seldom 
or never occurs. Thus, strikes and lockouts are proper 
only as mere trials, to ascertain whether labour will be 
forthcoming at a certain rate of wages, or under 
certain conditions. 

If the workmen in a trade are persuaded that their 
wages are too low, then a strike will show whether it is 
the case or not ; if their employers find them- 
selves unable to get equally good workmen at the same 
wages, they will have to offer more; but if equally 
good can be got at the old rate, then it is a proof that 
the strikers made a mistake. Their wages were as 
good as the state of trade warranted. It is all a matter 
of bargain, and of supply and demand. Those who 
strike work are in the position of those who, having a 
stock of goods, refuse to sell it, hoping to get a better 
price. If they make a mistake, they must suffer for it, 
and those who choose to sell their goods in the mean- 
time will have the benefit. But it is plain that it would 
never do to allow one holder of goods to intimidate and 
prevent other holders from selling to the public. It is 
worthy of consideration whether even voluntary com- 
binations of dealers should not be prohibited, because 
they are often little better than conspiracies to rob the 
public. The good of consumers, that is, of the whole 
people, is what we must always look to, and this is 
best secured when men act freely and compete with 
each other to sell things at the cheapest rates. 

53. Trades-Union Monopolies. It cannot be 
denied that, in certain trades, the men may succeed to 
some extent in keeping their wages above the natural 
level by union. Wages, like the prices of goods, are 



VIII.] TRADES-UNIONS. 69 

governed by the laws of supply and demand. Accor- 
diiigly, if the number of hat-makers can be kept down 
it reduces the number of hats that can be made, raises 
their prices, and enables the hat-makers to demand 
higher wages than they otherwise could do. Many 
unions try thus to limit production by refusing to 
admit more than a fixed number of apprentices, and 
by declining to work with any man who has not been 
brought up to the trade. It is probable that, where a 
trade is a small one, and the union powerful, there 
may be some success. The trade becomes a monopoly, 
and gets higher wages by making other people pay 
dearer for the goods they produce. They raise a tax 
from the rest of the nation, including all the workmen 
of other trades. This is a thoroughly selfish and 
injurious thing, and the laws ought by all reasonable 
means to discourage such monopolies. Moreover, 
monopoly is extremely hurtful in the long run to the 
working classes, because all the trades try to imitate 
those which are successful. Finding that the hatters 
have a strong union, the shoemakers, the tailors, and 
the seamstresses try to make similar unions, and to 
restrict the numbers employed. If they could succeed 
in doing so, the result would be absurd ; they would 
all be trying to grow richer by beggaring 
each other. As I have pointed out in the Logic 
Primer (section 177, p. 117), this is a logical fallacy, 
arising from the confusion between a general and a 
collective term. Because any trade separately 
considered may grow richer by taxing other 
trades, it does not follow that all trades taken 
together, and doing the same thing, can grow 
richer. 

No doubt, working men think that, when their 
wages are raised, the increase comes out of the pockets 
of their employers. But this is usually a complete 
mistake ; their employers would not carry on business 
unless they could raise the prices of their goods, and 
thus get back from purchasers the increased sum which 



70 PRIMER OF POLITICAL ECONOMY. [ch. 

they pay in wages. They will even want a little more 
to recompense them for the risk of dealing with 
workmen who strike at intervals, and thus interrupt 
business. It is the consumers of goods who ultimately 
pay the increased wages, and though wealthy people 
no doubt pay a part of the cost, it is mainly the 
working people who contribute to the higher wages of 
some of their own class. 

The general result of trades-union monopolies to the 
working people themselves is altogether disastrous. If 
one in a hundred, or one in a thousand is benefited, 
the remainder are grievously injured. The restrictions 
upon work which they set up tend to keep men from 
doing that which they are ready and willing to do. 
The lucky fatten at the cost of those whom they shut 
out in want of work, and the strikes and interruptions 
of trade, occasioned by efforts to keep up monopolies, 
diminish the produce distributed as wages. 

54. Professional Trades-Unions. We often 
hear the proceedings of trades-unions upheld on the 
ground that lawyers, doctors, and other professional 
men have their societies, Inns of Court, or other unions, 
which are no better than trades-unions. This is what 
may be called a tu quoque (thou also) argument. "We 
may form unions because you form unions." It is a 
poor kind of argument at best ; one man acting un- 
wisely is no excuse for another doing so likewise. I 
am quite willing to allow that many of the rules of 
barristers and solicitors are no better than those of 
trades-unions. That a barrister must begin to be a 
barrister by eating certain dinners; that he must never 
take a fee under a certain amount; that he must never 
communicate with a client except through a solicitor; 
that a senior counsel must always have a junior ; and 
most of the rules of the so-called etiquette are clearly 
intended to raise the profits of the legal profession. 
Many things of this kind want reform. But, on the 
other hand, these unions avoid many of the faults of 
trades-unions. There is no limit to the number of 



VIII.] TRADES-UNIONS. 71 



persons who may enter them; all men of good character 
and sufficient knowledge can become barristers and 
solicitors. Moreover, the entrance to the legal, medical, 
and several other professions is being more and more 
regulated by examinations, which are intended purely 
to secure able men for the service of the public. Nor 
is any attempt made in these professional trades-unions 
to prevent men from exerting themselves as much 
as they can, so as to serve the public to the utmost of 
their ability. These professional trades-unions are thus 
free from some of the evils which other unions produce. 

55. The Fallacy of Making Work. One of the 
commonest and worst fallacies into which people fall 
in political economy is to imagine that wages may be 
increased by doing work slowly, so that more hands 
shall be wanted. Workmen think they see plainly that 
the more men a job requires, the more wages must be 
paid by their employers, and the more money comes 
from the capitalists to the labourers. It seems, there- 
fore, that any machine, invention, or new arrangement 
which gets through the work more quickly than before, 
tends to decrease their earnings. With this idea, 
bricklayers' labourers refuse (or did lately refuse) to 
raise bricks to the upper parts of a building by a rope 
and winch; they preferred the old, laborious, and 
dangerous mode of carrying the bricks up ladders in 
hods, because the work then required more hands. 
Similarly, brickmakers refused to use any machinery ; 
masons totally declined to set stones shaped and 
dressed by machinery; some compositors still object 
to work in offices where type-composing machines are 
introduced. They are all afraid that if the work is 
done too easily and rapidly, they will not be wanted 
to do it ; they think that there will be more men than 
there are berths for, and so wages will fall. In almost 
every case this is an absurd and most unfortunate 
mistake. 

No doubt, if men insist on sticking to a worse way 
oi doing work after a better one has been invented, 
7 



72 PRIMER OF POLITICAL ECONOMY. [CH. 

they may get bad wages, and perhaps go to the work- 
house in old age. Thus, the hand-weavers in Spital- 
fields would continue weaving by hand, instead of 
learning to weave by steam power, and the case 
is somewhat the same with the hand-nailers of South 
Staffordshire. But when the younger workmen of a 
trade are wise and foreseeing enough to adopt a new 
invention as soon as it is successful, they are never 
injured, and usually much benefited by it. Seam- 
stresses in England received wretchedly poor wages 
before the introduction of the American sewing 
machine, and they thought they would be starved 
altogether when the same work could be done twenty 
times as fast by machine as by hand. The effect, 
however, has been just of the opposite kind. Those 
who were not young, skilful or wise enough to learn 
machine-sewing, receive better wages for hand-sewing 
than they would formerly have done. The machine 
sewers earn still more, as much in many cases as 
20S. a week. The explanation of this is that, when 
work is cheapened, people want much more of it. 
When sewing can be done so easily, more sewing is 
put into garments, and the garments being cheapened, 
more are bought. At the same time a good deal of 
the sewing, and finishing, and fitting, cannot be done 
by machinery, and this furnishes plenty of employment 
for those who cannot work machines. 

If masons were to employ machines for cutting 
stone, they would be benefited like the seamstresses, 
instead of being injured. The cost of cutting stone 
by hand is now so great that people cannot build 
many stone buildings, nor use stone to decorate brick 
buildings, unless they are wealthy people. Were the 
dressing of stone much cheapened by the aid of 
machinery, a great deal more stone would be used, 
and the masons, instead of labouring at the dull work 
of cutting flat surfaces, would find plenty of employ- 
ment in finishing, and carving, and setting the machine- 
shaped stones. I have not the least doubt that, in 



VIII.] TRADES-UNIONS. 73 

addition to those engaged in working the machines, 
there would in the end be more jnasons wanted after 
the general introduction of machines than before. 
With type-setters the same thing will happen, if they 
take betimes to the new type-composing machines. It 
is true that a man with the aid of a good machine can 
set types several times as fast as without. But though 
the wages paid for setting a certain number of types 
might thus be reduced, so many more books, 
pamphlets, newspapers, and documents of various 
kinds would be printed, that no want of employment 
could be felt. Much of the work, too, such as the 
justifying, correcting, making into pages, &c., cannot 
be done by machinery, or not profitably, so that there 
would be plenty of work even for those who would 
not consent to work machines. 

The fact is that wages are increased by in- 
creasing the produce of labour, not by de- 
creasing the produce. The wages of the whole 
working population consist of the total produce re- 
maining after the subtraction of rent, interest, and 
taxes. People get high wages in Lancashire because 
they use spinning machinery, which can do an immense 
quantity of work compared with the number of hands 
employed. If they refused to use machinery, they 
would have to spin cotton by hand like the poor in- 
habitants of Cashmere. Were there no machinery of 
any kind in England we should, nearly all of us, be as 
poor as the agricultural labourers of Wiltshire lately 
were. 

People lose sight of the tact that "we do not 'work 
for the sake of working, but for the sake of 
what w^e produce by working. The work itself 
is the disagreeable price paid for the wages earned, 
and these wages consist of the greater part of the value 
of the goods produced. It is absurd to suppose that 
people can become richer by having less riches. To 
become richer we must make more riches, and the 
object of every workman should be not to make work, 



74 PRIMER OF F0LI7-ICAL ECONOMY. [CH. 

but to make goods as rapidly and abundantly as pos- 
sible. 

56. Piece-Work. Some trades unions endeavour 
to prevent their members from earning wages by piece 
work, that is, by payment for the quantity of work 
done, instead of payment for the time spent in doing 
it. If a man is paid tenpence an hour, Avhether he 
work quickly or slowly, it is evidently for his interest 
to work slowly rather than quickly, provided that he be 
not so lazy as to run a risk of being discharged. It is 
a well knoAvn fact that men employed on piece-work 
do much more work in the same time than those em- 
ployed on time jobs, and it is altogether better that 
they should be paid by the piece when the work done 
can be exactly measured and paid for. The men earn 
better wages because they are incited to do so much 
more, and they earn it more fairly, as a general rule. 
Trades-unions, however, sometimes object to piece- 
work, the reason given being that it makes the men 
work too hard, and thus injures their health. But this 
is an absurd reason; for men must generally be sup- 
posed capable of taking care of their own health. 
There are many trades and professions in which people 
are practically paid by the piece, but it is not found 
necessary to have trades-unions to keep them from 
killing themselves. There is more fear that people 
will work too little rather than too much. 

The real objection w4iich trades-unionists feel to 
piece-work is that it gets the work done quickly, and 
thus tends, as they think, to take employment away from 
other men. But, as I have already explained, men do 
not work for the sake of working, but for the sake oi 
what they produce, and the more men in general pro- 
duce, the higher wages in general will be. Trades- 
unionists put forward their views on the ground of un- 
selfishness. They would say that it is selfish of Tom 
to work so as to take away employment from Dick and 
Harry ; but they overlook the thousands of Toms, 
Dicks, and Harrys in other employments who get 



VIII.] TRADES-UNIONS, 75 

small wages indeed, and who are perhaps prevented 
by their rules from earning more. If the nation as a 
whole is to be wealthy and happy, we must each of us 
work to the best of our powers, producing the wealth 
which we can best produce, and not grudging others 
a greater success, it Providence has given them superior 
powers. People can seldom produce wealth for them- 
selves without spreading a greater benefit over society 
in general, by cheapening commodities and lightening 
toil 

57. The Fallacy of Equality. Workmen often 
show a dislike to allowing one man to earn more than 
another in the same shop, and at the same kind of 
work. This feeling is partly due to the mistaken 
notion that in doing more work than others he takes 
employment from them. It partly, however, arises 
from a dislike to see one man better off than his 
mates. This feeling is not confined to workmen. 
Any one who reflects upon the state of society must 
regret that the few are so rich, and the many so poor. 
It might seem that the laws must be wrong which allow 
such differences to exist. It is needful to reflect, 
therefore, that such differences ot wealth are not for 
the most part produced by the laws. All men, it has 
been said, are born free and equal ; it is difficult to 
see how they can be born free, when, for many years 
after birth, they are helpless and dependent on their 
parents, and are properly under their governance. 
No doubt they ought to become free when grown up, 
but then they are seldom equal. One youth is stout, 
healthy and energetic ; another puny and weak ; one 
bright and intelligent ; another dull and slow. Over 
these differences of body and mind the laws have no 
power. An Act of Parliament cannot make a weak 
frame strong. It follows that in after life some men 
must be capable of earning more than others. Out of 
every thousand men and women, too, there will be a 
few who are distinguished by remarkable talents or 
inventive genius. One man by patient labour and 



76 PRIMER OF POLITICAL ECONOMY, [ch. 

great sagacity invents a sewing machine, a telegraph, 
or a telephone, and he thus confers the greatest 
possible advantage upon other men for centuries after. 

It is obviously to the advantage of everybody 
that those who are capable of benefiting society 
should be encouraged to do so by giving them all 
the reward possible, by patents, copyright, and the 
laws of property generally. To prevent or discourage 
a clever man in doing the best work he can, is cer- 
tainly no benefit to other men. It tends to level all 
down to a low standard, and to retard progress 
altogether. Every man, on the contrary, who is in- 
cited to work, and study, and invent to the utmost 
of his powers, not only earns welfare for himself, but 
confers w^elfare upon other people. He shows how 
wealth may be created abundantly, and how toil may 
be lessened. What is true of great ability and great 
inventions is true, also, of the smallest differences of 
power or the slightest improvements. If one brick- 
layer's labourer can carry up more bricks than another, 
why should he be prevented from doing it ? The 
ability is his property, and it is for the benefit of all 
that he should be allowed to use it. If he finds a 
better way of carrying bricks, of course it should be 
adopted in preference to worse ways. The purpose 
of carrying bricks is to get them carried and benefit 
those who want houses. Evervthinsj which makes it 
dififtcult and expensive to build houses, causes people 
to be lodged worse than they otherwise would be. 
We can only get things made well and cheaply if 
every man does his best, and is incited to do so by 
gaining the reward of his excellence. 

Every man then should not only be allowed, but 
should be encouraged to do and to earn all that he 
can; we must then allow the greatest inequalities of 
wealth ; for a man who has once begun to grow rich, 
acquires capital, and experience, and means which 
enable him to earn more and more. Moreover, it is 
altogether false to suppose that, as a general rule, 



VIII.] TRADES-UNIONS. ^^ 



he does this by taking wealth from other people. On 
the contrary, by accumulating capital, by building 
mills, warehouses, railways, docks, and by skilfully 
organising trades, he often enables thousands of men 
to produce wealth, and to earn wages to an extent 
before impossible. The profits of a capitalist are 
usually but a small fraction of what he pays in wages, 
and he cannot become rich without assisting many 
workmen to increase the value of their labour and to 
earn a comfortable subsistence. 



CHAPTER IX. 
CO-OPERATION, &c. 

58. Arbitration. We have now considered at 
some length the evils arising from the present separa- 
tion of interests between the employed and their 
employers. ^ The next thing is to discuss the various 
attempts which have been made to remedy these evils, 
and to bring labour and capital into harmony with 
each other. In the first place, many people think 
that when any dispute takes place, arbitrators or 
judges should be appointed to hear all that can be 
said on both sides of the question, and then decide 
what the rate of wages is to be for some time to come. 

No doubt a good deal may be said in favour of 
such a course, but it is nevertheless inconsistent with 
the principles of free labour and free trade. If the 
judges are to be real arbitrators, they must have 
power to compel obedience to their decision, so 
that they will destroy the liberty of the workman to 
work or not as he likes, and of the capitalist to deal 
freely with his own capital, and sell goods at whatever 
price suits the state of the market. If wages are to 
be arbitrarily settled in this way, there is no reason 
why the same thing should not be done with the prices 
of corn, iron, cotton, and other goods. But legislators 
have long since discovered the absurdity of attempting 



78 PRIMER OF POLITICAL ECONOMY. [ch. 

to fix prices by law. These prices depend enrirely 
upon supply and demand, and no one is really able to 
decide with certainty what will be the conditions of 
supply and demand a month or two hence. Govern- 
ment might almost as wisely legislate about the 
weather we are to have next summer as about the 
state of trade, which much depends upon the weather, 
or upon wars and accidents of various kinds, which 
no one can foresee. It is impossible, then, to fix 
prices and wages beforehand by any kind of law or 
compulsory decision. The matter is one of bargain, 
of buying and seUing, and the employer must be at 
liberty to buy the labour required at the lowest price 
at which he can get it, and the labourers to sell their 
labour at the highest price they can get, both subject 
of course to the legal notice of a week or fortnight. 

59. Conciliation. Though the compulsory fixing 
of wages is evidently objectionable, much good may 
be done by conciliators, who are men chosen to 
conduct a friendly discussion of the matters in dispute. 
The business is arranged in various ways ; sometimes 
three or more delegates of the workmen meet an 
equal number of delegates from the masters, who 
place before the meeting such information as they 
think proper to give, and then endeavour to come to 
terms. In other cases the delegates lay their respective 
views before a man of sound and impartial judgment, 
who then endeavours to suggest terms to which both 
sides can accede. If the two parties previously engage 
that they will accept the decision of this conciliator or 
umpire, the arrangement differs little from arbitration, 
except that there is no legal power to compel com- 
pliance with the decision. Discredit has been thrown 
upon this form of concihation by the fact that the 
workmen have in several instances refused to abide by 
the award of the umpire when given against them, and 
of course it cannot be expected that masters will 
accept adverse decisions as binding under such cir- 
cumstances. Thus I am led to think that the con- 



IX.] CO-OPERATION. 79 

ciliator should not attempt to be a judge ; he should 
be merely an impartial friend of both sides, trying to 
remove misapprehension and hostile feelings, enlight- 
ening each party as to the views and reasons and 
demands of the other — acting, in short, as a go- 
between, and smoothing down the business as oil 
eases the movement of a machine. The final settle- 
ment must take the form of a voluntary bargain 
directly between the employers and employed, which 
will only have compulsory effect during the week or 
fortnight for which workmen usually enter into a legal 
agreement. Conciliation may in this way do much 
good, but it cannot remove the causes of difference — 
it cannot make the men feel that their interest is 
one with the interest of their employers. 

60. Co-operation. Among the measures pro- 
posed for improving the position of workmen, the best 
is co-operation, if we understand by this name the 
uniting together of capital and labour. The 
name co-operation is used indeed with various mean- 
ings, and some of the arrangements called by it have 
really nothing to do with what we are now considering. 
To co-operate means to work together (Latin, 
con, together, and opei'or, to work). About thirty-five 
years ago some workmen of Rochdale, noticing the 
great profits made by shopkeepers in retail trade, 
resolved to work together by buying their own supplies 
wholesale, and distributing them amongst the members 
of the society which they established. They called 
this a co-operative society, and a great number 
ot so-called co-operative stores have since been estab- 
lished. Most of these are nothing but shops belonging 
to a society of purchasers, who agree to buy at the 
store and divide the profits. They have on the whole 
done a great deal of good by leading many men to 
save money and to take an interest in the management 
of affairs. The stores are also useful, because they 
compete with shopkeepers, and induce them to lower 
their prices and to treat their customers better. We 



8o PRIMER OF POLITICAL ECONOMY. [ch. 

frequently hear now ot shops selHng goods at co- 
operative prices. 

But such co-operative societies have little or nothing 
to do with the subject of capital and labour. . Com- 
monly these stores are conducted less upon the true 
co-operative principle than ordinary shops. A shop 
is usually managed by the owner or by a man who hag 
a large interest in its success, and has the best reasons 
for taking trouble. Co-operative stores,, on the con- 
trary, are often managed by men who are paid by 
salary or wages only, and have nothing to do with the 
profits and the capital of the concern. 

Real co-operation consists in making all 
those who work share in the profits. At 
present a workman sells his labour for the best price 
he can get, and has nothing further to do with the 
results. If he does his work well, his master gets the 
benefit, and if he works badly his master is injured. 
It is true that he must not be very lazy or negligent 
for fear of being discharged ; but if he takes care to 
be moderately careful and active, it is all that he need 
do for his own interests. No doubt it would be a 
good thing to reward the more active workmen with 
higher wages, and a wise employer endeavours to do 
this when he can, and to put the best workmen into 
the best places. But the trades-unions usually pre- 
vent it as far as they can, by insisting that men doing 
the same kind of work in the same place shall be paid 
alike. Moreover, as we have seen, many men are 
under the mistaken belief that if they work hard they 
decrease the demand for employment, and tend to 
take away the bread from their fellow-men. Thus it 
is not uncommon for workmen to study how not to 
do the work too quickly, instead of striving to 
make the most goods in the least time with the least 
trouble. Workmen do not see that what they produce 
forms in the long run their wages, so that if all 
workmen could be incited to activity and carefulness, 
wages would rise in all trades. 



IX.] CO-OPERATION. 8 1 

6 1. Industrial Partnerships. The best way 
of reconciling labour and capital would be to give 
every workman a share in the profits •of his factory 
when trade is so prosperous as to allow of it. Charles 
Babbage proposed, in the year 1832, that a part of 
the wages of every person employed should depend 
on the profits of the employers. In recent years this 
has been tried in several large works, especially in 
Messrs. Briggs' collieries, and in Messrs. Fox, Head 
& Co.'s iron-works. The arrangement generally made 
with the men was that the capitalists should first take 
enough of the profits to pay 10 per cent, interest on 
the capital, together with fair salaries for the managers 
as wages of superintendence, a sum to meet bad 
debts, the repairs and depreciation of the machinery, 
and all other ordinary causes of loss. Such profit as 
remained was then divided into two equal parts, one 
of which went to the employers, while the other was 
divided among the workpeople in proportion to the 
amounts of wages which they had received during the 
year. Many workmen under such a scheme found 
themselves at Christmas in possession of five or ten 
pounds, in addition to the ordinary wages of the trade 
received weekly during the year. 

This kind of co-operation has been called indus- 
trial partnership, and, if it could be widely carried 
into effect, there would arise many advantages. The 
workmen, feeling that their Christmas bonuses de- 
pended upon the success of the works, would not 
favour idleness, and would have some inducement for 
preventing needless waste whether of time or ma- 
terials. By degrees they would learn that the best 
trades-union is a union with their employers. 
Strikes and lock-outs would be for the most part a 
thing of the past, because, if wages were too low, the 
balance-sheet would prove the fact at the end of the 
year, and half the surplus would go to the workmen. 
To be free from the danger of strikes would be a very 
great advantage to the employers, and any portion of 
14* 



82 PRIMER OF POLITICAL ECONOMY. [CH. 

profits which they might seem to give up would be 
more than repaid by the increased care and activity 
of the workmen. The employers would continue to 
manage the business entirely according to their own 
judgment, and they need not make their affairs or 
accounts known to the men. All that is requisite is 
that skilful accountants should examine the books at 
the end of the year, and certify the amount of profits 
due to the men. If this plan were thoroughly carried 
out, the men would feel that they were really working 
for themselves as much as for their masters, and the 
troubles which at present exist would be nearly un- 
known. 

There are great difficulties in the way of this kind 
of co-operation : most capitalists do not like it, be- 
cause they needlessly fear to make known their profits 
to their men, and they do not understand the advan- 
tages which would arise from a better state of things. 
The workmen also do not like the arrangement, 
because the trades-unions oppose co-operation, fearing 
that it will overthrow their own power. Where the 
scheme has been tried, it has usually succeeded well, 
until the men, urged by their trades-unions, refused to 
go on with it. Thus are people, through prejudice 
and want of knowledge, made blind to the best 
interests of themselves and the country. 

It is to be feared, then, that industrial partnerships 
will not make much progress just at present, so great 
is the dislike to them felt both by trades-unions and 
by prejudiced employers. Nevertheless, the arrange- 
ment is in accordance with the principles of political 
economy, and it will probably be widely adopted by 
some future generation. Already, indeed, many banks, 
mercantile firms, and public companies practically 
recognise the value of the principle, by giving bonuses 
or presents to their clerks at the end of a profitable 
year. A French railway company adopted this practice 
forty years ago, and as business falls more and more 
into the hands of companies whose profits are matters 



IX.] CO-OPERATION. 83 

of general knowledge, there seems to be no reason 
whatever why the principle of industrial partnership 
should not be adopted. Somewhat the same principle 
is said to be carried into effect in the very extensive 
and successful newspaper business of Messrs. W. 
H. Smith & Son. 

62. Joint-Stock Co-operation. Another mode 
of co-operation consists in working men saving up their 
wages until they have- got small capitals, so that they 
can unite together and own the factories, machines, 
and materials with which they work. They then 
become their own capitalists and employers, and 
secure all the profit to themselves. Co-operative 
societies of this kind are simply Joint-Stock Com- 
panies, the shares of which are held by the men 
employed. Of course the shareholders must choose 
directors from among themselves, and they must also 
have managers to arrange the business. The managers 
and directors ought to be well paid for what they do, 
and have a considerable share of the profits, in order 
to make them interested in the success of the works, 
and therefore active and careful. Incompetent or 
negligent management will soon ruin the best business. 

A great number of co-operative companies of this 
kind have been formed in the last twenty years in 
England, France, America, and elsewhere ; but most 
of them have failed from want of good direction. The 
w^orking-men shareholders do not generally understand 
what a great deal of skill and judgment is required in 
the conduct of a business; they are accustomed to 
see work going on as if it went of its own accord, but 
they do not see the constant anxiety and the careful 
calculation which is requisite to make the work profit- 
able. Hence they usually fail to secure good man- 
agers, and they do not sufficiently trust those whom 
they appoint. Moreover, many of the so-called co- 
operative companies are not really co-operative ; they 
frequently employ men who are neither shareholders 
nor receivers of a share of profits, and they pay their 
8 



84 PRIMER OF POLITICAL ECONOMY. [ch. 

managers by a small fixed salary. Such co-oper- 
ative societies are badly-managed joint-stock 
companies, and cannot be expected to suc- 
ceed well. 

Another difficulty with such companies is, that they 
rarely have enough capital, and, when bad trade 
comes, they are unable to bear the losses which will 
sometimes occur for several years in succession. They 
can borrow money by the mortgage of the buildings 
and machinery belonging to the company, and this is 
usually done ; but no banker will give credit to such 
companies without the security of fixed property. 
Thus they frequently fail when bad trade comes, and 
those who buy up their property cheaply reap ad- 
vantage. It is to be hoped that at a future time all 
working-men will become capitalists on a small 
scale, and when education and experience have been 
acquired, co-operative factories of working-men may 
succeed. At present it would be better to leave the 
management of business in the hands of capitalists, 
who are not only experienced and clever men, but 
have the best reason to be careful and active, because 
their fortunes depend upon success. 

^2^. Providence. It is most deeply to be re- 
gretted that the working-people of England will not, 
for the most part, see the necessity of saving a portion 
of their wages in order to have something to live upon 
when trade is bad, or when ill-health and misfortune 
come upon them. Too many working-men's families 
spend all that is earned while trade is brisk, and when 
employment fails they are as badly off as ever. 
There are several distinct reasons why every 
man or w^oman should save up some pro- 
perty when possible: — 

(i) It forms a provision in case of ill-health, acci- 
dent, want of employment, or other misfor- 
tune ; it is also wanted for support in old age, 
or for the helpless widow and orphans of a 
workman who dies early. 



IX.] CO-OPERATION. 85 

(2) It yields interest, and adds to a workman's 

income. 
(3). It enables a man to go into trade, to buy good 

tools, and to enjoy good credit in case he sees 

an opportunity of setting up business on his 

own account. 
No man and no woman, who is in the prime of life 
and earning fair wages, should spend the whole. 
Even an unmarried person will generally reach a time 
of life when, through ill health, old age, or other 
unavoidable causes, it is no longer possible to get a 
living. By that time enough ought to have been 
saved to avoid the need of charity or the degradation 
of the poor-house. When there is a wife and young 
family, the need ot saving is evidently greater still. 
Every great storm, colliery explosion, or other great 
accident leaves a number of helpless children to be 
brought up by a struggling widow, or to go on the 
parish. No doubt people may meet with disasters 
so unexpected and so great that they cannot be 
blamed for not providing against them. A man who 
is blinded, or crippled, or otherwise disabled in early 
life, is a proper object of charity, but there would be 
plenty of benevolent institutions to provide for such 
exceptional cases, if those who are more fortunate 
would provide properly for themselves. 

It is often said that working men really cannot save 
out of the small wages they receive ; the expenses of 
living are too great. We cannot deny that there are 
labourers, especially agricultural labourers in the 
South of England, whose wages will not do more than 
barely provide necessary food and clothing for their 
families. The weekly earnings of a family in some 
parts are not more than 12 or 15 shiUings on the 
average of the year, and sometimes even less. Such 
people can hardly be expected to save. But this is 
not the case with the artisans and labourers in the 
manufacturing districts. They seldom earn less than 
a pound a week, and often two pounds. The boys 



86 PRIMER OF POLITICAL ECONOMY. [cH. 

and girls, and sometimes the mother of the family, 
also earn wages, so that when trade is brisk a family 
in Manchester or Leicester, or other manufacturing 
town, will get altogether -Qi^o 2. year, or more. Some 
kinds of workmen, especially coal-hewers, and iron- 
puddlers, earn twice that amount in good years, and 
are in fact better paid than schoolmasters, ministers 
of religion, and upper clerks. It is idle to say that 
the better-paid working men cannot save, and though 
we cannot make any strict rule, it is probable that all 
'who earn more than a pound (five dollars, or 
25 francs) a week, might save something. 

It is easy to prove this assertion by the fact that 
when a strike occurs, men voluntarily live on a half, 
or a third of their ordinary wages. Sometimes they 
will live for three or four months on 1 2 or 1 5 shillings 
a week, which is paid for their support by their 
trades-union, or by other unions, which subscribe 
money to assist them. It is quite common for work- 
men to pay levies, that is, almost compulsory sub- 
scriptions of a shilling or more a week, to be spent by 
other workmen who are playing, as it is called, 
during a long strike. Nobody wishes working people 
to live on the half of their wages, but if, for the 
purpose of carrying on struggles against 
their employers, they can spare these levies, 
it is evident that they could spare them for 
the purpose of saving. Then, again, we know 
that the money spent on drink is enormous in amount; 
in this country it is about ;?{^i4o,ooo,ooo a year, or 
about four pounds a year for every man, woman, and 
child. To say the least, half of this might be saved, 
with the greatest advantage to the health and morals 
of the savers, and thus the working classes would be 
able to lay by an annual sum not much less than the 
revenue of the nation. 



X.] TENURE OF LAND. 



87 



CHAPTER X. 

TENURE OF LAND. 

64. We have sufficiently considered the difficulties 
which exist regarding Labour and Capital, two of 
the requisites of production, and we will now turn to 
another part of political economy, and inquire into 
the way in which Land, the third requisite, is sup- 
pHed. 

In different countries land is held in very different 
\yays. It is a matter of custom, and in the course of 
time customs slowly change. The way in which farms 
are owned and managed in England at the present 
time is no indication of the way land is held in 
France, or Norway, or Russia, or even the United 
States ; nor is it the same as the way in which farms 
were owned in England some centuries ago. What 
is fitting to one place and state of society will not 
necessarily be fitting in other circumstances. We have 
to consider the various ways in which the requisites 
of production, land, labour, and capital, are brought 
together; sometimes they are all furnished by the 
same person ; sometimes by separate persons. 

In the condition of slavery, for instance, as it 
existed in the Southern States of North America, the 
owner of an estate owned the land, labour, and capital, 
all at once. Strictly speaking a slave is not a labourer' 
because he cannot sell his labour at his own price, and 
\york or not as he likes. He is more in the posi- 
tion of the horse which drags the plough, a mere beast 
of burden. Just as a farmer owns his horses, and cows, 
and pigs, as part of his capital, so a slave-owner treats 
his slaves as part of his capital. Slave-labour being 
given unwillingly, and without hope of reward, is 
usually badly given, and is wasteful; but there is 
hardly any need to consider whether slavery is good or 
bad m an economical point of view, because it is alto- 



88 PRIMER OF POLITICAL ECONOMY. [ch. 

gether condemned from a moral point of view. We 
may show the way the requisites of production are fur- 
nished in slavery by the following diagram — 
Slave-Owner. 

Land. Labour. Capital. 

In a very large part of the world, again, the govern- 
ment takes the place of land-owners, and collects the 
rent by means of tax-gatherers. The farming is done 
by poor peasants, who find the capital, so far as there 
is any, and also do the work. Thus, we have the 
arrangement — ■ 

Government. Peasant. 

Land. Capital. Labour. 

This system is called Ryot Tenure, and it exists at 
the present day in Turkey, Egypt, Persia, and many 
eastern countries ; also in a somewhat altered form in 
British India. After slavery, it is the worst of all 
systems, because the Government can fix the rent at 
what it likes, and it is difficult to distinguish between 
rent and taxes. When their crops fail the ryot peasants 
are unable to pay the tax-gatherers, and they get into 
debt and become quite helpless. 

65. Peasant Proprietorship. One of the best 
modes of holding land, when it can exist, is that known 
as peasant proprietorship, because the owner of the 
land is the peasant himself, who labours with his own 
arms, and finds the capital also. In this system, as in 
slavery, all the requisites of production are in the same 
hands ; thus — - 

Peasant. 

Land. Labour. Capital. 

But in every other respect this system is the opposite 
of slavery. Its advantages are evident ; the labourer 
being the owner of the farm and of all upon it, is an 
independent man, who has every inducement to work 



X.] TENURE 01^ LAND. 89 

hard, and to increase his savings. Every Httle im- 
provement which he can make in his farm is so much 
added to his wealth, and that of his family after him. 
There is what is called the magic of property. The 
feeling that he is working entirely for his own and his 
family's benefit almost magically increases his 
inclination to work. In newly-settled com:itries, 
such as the Western Territories of the United 
States, and Canada, or the colonies of Australia, and 
the Cape, this mode of holding land seems to be 
suitable, because the land is there very cheap, and 
crops can be raised with httle capital. In such 
countries there is no need of expensive manures, ela- 
borate machinery, and the cost of draining and improv- 
ing land. 

The objection to peasant proprietorship is, that he 
who does the labour of a farm with his own hands, 
must usually be a poor and unskilful person. If he 
were rich he would probably prefer to buy up the labour 
of other men, and become a capitalist farmer; if he 
w^re a really skilful farmer, it would be a pity to waste 
his skill upon a small farm, when, with more division 
of labour, he might profitably direct and manage a 
large one. Being poor, his capital will be mostly ab- 
sorbed in building his cottage and barns, and in pay- 
ing the small price of his land ; he will have little left 
to make improvements, or to buy good labour-saving 
implements, and good stock, such as well-bred horses, 
cows, and pigs. Thus, unless his land be new and 
very fertile, he will not get a large return for his labour. 
Owing to the magic of property, he may work very 
hard, and during long hours, but he will not work in 
an economical way, and therefore will remain poor in 
spite of his severe exertions. The peasant proprietors 
who still exist in Switzerland, Belgium, Norway, 
Sweden, and some other parts of Europe, work almost 
day and night during the summer, and they are very 
careful and saving ; yet they seldom grow rich, or get 
more than a bare living out of the soil. 



90 PRIMER OF POLITICAL ECONOMY. [ch. 

Too frequently the peasant proprietor, if he is not 
very provident, runs short of money after one or two 
bad seasons. He will then be tempted to borrow 
money, to sell his timber, and other produce before it 
is ready for the market, and thus run in debt. When 
his farm has increased in value and would bring some 
rent, he will very likely mortgage it, that is, give it by 
a legal deed as security for his debts. The mortgagee 
or lender of the money then becomes part-owner of the 
land and capital, so that the arrangement tends to take 
this form — 

Money-Lender. Peasant. 

Land. Capital. Capital. Labour. 

66. Tenure of Land in England. As agri- 
culture becomes more a science, farming will require 
greater skill, and larger capital, and the English mode 
of land tenure will probably spread. In this system 
there is the greatest division of labour, and different 
ranks of people have shares in the business, somewhat 
as follows : — 
Proprietor. Farmer. Labourer. 

Land. Capital. Capital. Labour. Labour. 

The land is usually owned by some rich man, who 
likes to have large estates, but does not wish to have 
the trouble of farming. In respect of the land only 
he is a proprietor of a natural agent, and the 
rent he receives is true rent; but there will usually 
be buildings, roads, fences, drains, and other improve- 
ments, of which he is also owner ; in respect of these 
he is a capitalist, and the return he receives is interest. 
The farmer is a man of knowledge and skill, with 
considerable capital ; he hires the land and its im- 
provements from the proprietor, and stocks it with 
cattle, carts, improved implements of all kinds, and 
then employs day-labourers to do the manual work, 
labouring himself in superintendence, in keeping 



X.] TENURE OF LAND. gi 

accounts, buying and selling, &c. The labourer, 
generally speaking, is nothing but a labourer; he 
lives in a cottage hired probably from the farmer or 
proprietor, and he has little motive for working 
harder than he is made to do, because the advantage 
goes to his employer. 

In this arrangement there are great advantages, and 
also great disadvantages. The farmer, being an intel- 
ligent man, acquainted with agricultural science, and 
furnished with plenty of capital, can adopt all the 
latest inventions, and raise the largest possible pro- 
duce from the land and labour. It is also advan- 
tageous that the farmer does not own the land and 
fixed capital, because this leaves all his own capital 
free to provide more expensive implements and man- 
ures, and finer kinds of cattle. It is also a good 
thing that farms will, on this system, be large, so that 
there will be considerable division of labour, almost as 
in a factory; thus there will arise some of the ad- 
vantages which were described as belonging to the 
Division of Labour (Sections 25 — 29). 

The disadvantages of the English mode of farming 
are also great, especially as regards the labourers, the 
most numerous class. They have none of the inde- 
pendence of peasant proprietors, and, when dismissed, 
or too old to work, have probably to go to the work- 
house. Their wages have hitherto been very low, and 
saving was not possible. But this state of things is 
partly due to the bad Poor Laws which used to exist in 
England, and to the excessive numbers of poor, ignorant 
labourers. After a time, when the poor laws are im- 
proved, when labourers become more educated, and 
are employed, like factory hands, to work machines, 
there is no reason why they should not get good 
wages, and become independent, like artisans. 

In the English system, a great deal depends upon 
the nature of the agreement between the land-owner 
and the capitalist farmer. Many large land-owners in 
England refuse to let their land for long periods 



92 PRIMER OF POLITICAL ECONOMY. [cH. 

They like to have farmers who are tenants at vi^ill, 
and can be turned off their farms at a year's notice, 
and deprived of the value of all the improvements 
they have made, if they offend the great land-owner. 
It is easy to understand this ; the land-owners wish to 
be lords, and to rule affairs in their own neighbour- 
hood, as if they were little kings. This sort of thing 
is called territorial influence, and men who have 
become rich by making iron or cotton goods, often 
buy estates at a high price, in order to enjoy the 
pleasure of feeling like lords. The rural parts of 
England, Scotland, and Ireland are still, in fact, under 
the feudal system. 

In a Primer like this we have to look at the matter 
as regards political economy only, and in this respect 
the arrangement described is bad. Tenants at will 
have no inducement to improve their farms, because 
this would tempt the land-owner to turn them out, or 
to raise the rent. It is generally understood, indeed, 
that a land-owner will not use his power, so that many 
farmers act as if they were sure of holding their farms ; 
if turned out after all, they are practically robbed of 
their capital ; and, in any case, they cannot possibly 
feel the independence which every man ought to 
enjoy. We must always remember that the laws 
should be made not for the benefit of any one class, 
but for the benefit of the whole country. The laws 
concerning landlord and tenant have, however, been 
made by landlords, and are more fitted to promote 
their enjoyment than to improve agriculture. 

There are two modes of remedying the unfortunate 
state of land tenure in this country, namely : — 
(i) By a system of long leases. 
(2) By tenant right. 

67. Leasehold Tenure. A lease is a formal 
agreement to let land or houses to a tenant for a certain 
number of years at a fixed rent, and with various con- 
ditions, which are carefully stated, to prevent mis- 
understanding. When land is taken by a farmer 



X.] TENURE OF LAND. 93 

under a lease for thirty years or more, it becomes 
almost like his own property, because, in the earlier 
part of his term, he can make great improvements 
with the aid of his capital, and yet be sure of getting 
the value back before the lease comes to an end. In 
the eastern parts of England and Scotland, where the 
farms are largest and best managed, these long leases 
are the usual mode of letting land. It is certainly one 
of the best arrangements for promoting good farming, 
and it has few disadvantages, except that the farmer will 
not make improvements towards the end of his lease. 

dZ. Tenant Right. Another good arrangement 
is tenant right, which consists in giving the tenant 
a right to claim the value of any unexhausted 
improvements, which he may have made in his 
farm, if he be turned out of it. A farmer can prove 
without difficulty how much he has spent in building 
barns, stables, piggeries, &c., in draining the lands, 
making roads and fences, or in putting lime and costly 
manures into the soil. Those who are experienced in 
farming can form a good judgment how long each 
improvement will continue profitable, so as to calcu- 
late how much the tenant loses if he be turned away. 
Thus a good estimate may be formed as to the sum 
which the tenant should receive as compensation, and 
the landlord, if he chooses to dismiss the tenant, should 
be obliged to pay this compensation. He will get it 
back by charging a higher rent to the next tenant. 

Tenant right, though unknown in most parts of 
England, is not at all a new system ; it has existed for 
a long time in the north of Ireland, where it is called 
the Ulster tenant right. A new tenant there pays 
the old tenant a considerable sum of money for the 
privilege of getting a good farm with various improve- 
ments, and the land-owner is practically prevented from 
turning out a good tenant at his mere will. In 
Yorkshire also it has been the custom to compensate 
an outgoing tenant, and there is no good reason why 
the custom should not be made into a legal right, and 



94 PRIMER OF POLITICAL ECONOMY. [CH. 

extended over the whole country. Mr. Gladstone's 
Irish Land Act has already established a somewhat 
similar system throughout Ireland. If the land is to 
be used for its proper purposes, and not merely for 
the amusement and pride of a few landlords, every 
owner of land "who lets it should be obliged 
either to give a long lease, say of thirty or 
fifty years, or else to pay the compensation 
fixed by a jury after taking evidence from those 
skilled in valuing farms. It should be made illegal 
to let land on any other terms. 

69. The Cause of Rent. It is very important 
to understand exactly how rent arises, for without 
knowing this it is impossible to see why a landlord 
should be allowed to come and take away a consider- 
able part of what is produced, without taking any other 
trouble in the matter. But the fact is that we cannot 
do away with rents : they must go to some one or other, 
and the only real question which can arise is whether 
there shall be many landlords receiving small rents 
or few landlords with great rent-rolls. 

Rent arises from the fact that different pieces of 
land are not equally fertile, that is, they do not yield 
the same quantities of produce for the same quantities 
of labour. This may arise from the soil being different, 
or from one piece of land getting more sun and mois- 
ture than another. If the earth had a perfectly smooth 
surface the same everywhere, and if it were all tilled 
and cultivated in exactly the same way, there would be 
no such thing as rent. But the earth's surface, as we 
know, has hills and valleys : there are flats of rich 
soil in one place, and wastes of dry sand and stones 
in other places. Now, where the soil is good and 
favourably situated for growing corn, or other produce, 
the owner of such land must get more, in return for 
his labour, than if he possessed a bad piece of land. 
Even then, if everybody owned the farm which he 
cultivates, those who owned the better pieces would 
get rent, because they would get more produce. Thus, 



XL] TENURE OF LAND. 95 

after allowing the same wages to all, there would 
remain something in addition to the lucky owners of 
the better land. If, instead of working on this good 
land themselves, they let it to other workmen, they 
will be able to get a rent depending on the richness 
and the other advantages of the land. 

Now there can be little difficulty in seeing how the 
amount of rent of land is governed. That land will 
pay no rent at all which only gives produce enough to 
pay. the wages of the labourers who work upon it, 
together with the interest of any capital which they 
require. The rent ot better land will then consist of 
the surplus of its produce over that of the poorest 
cultivated land, after allowance has been made for the 
greater or less amount of labour and capital expended 
on it. Or we may look at the matter in this way : The 
price of corn is decided by the cost of producing it on 
land which just pays the expenses of cultivation, because 
when more corn is needed, it is from such land we 
must procure it, the better land having been long since 
occupied. But corn of the same quality sells at the 
same price whatever be its cost of production ;. hence 
the rent of more fertile land will be the excess of the 
price of its produce over that of land which only just 
pays the cultivator and leaves no rent. 



CHAPTER XL 

EXCHANGE. 

70. How Exchange Arises. One of the most 
important ways in which we can increase wealth con- 
sists in exchange — in giving what we do not 
w^ant in return for what we do want. 

Wealth, as we have seen, is anything which is actually 
useful to us, because we have not enough already, 
and which can be transferred to another person. But 
when our want of any kind of commodity is satisfied, 
we want no more of that, but we do want other kinds 



g6 PRIMER OF POLITICAL ECONOMY. [ch. 

of commodity. The result is that exchange constantly 
produces a gain of utility. Some people have 
objected that there can be no good in exchange, 
because that which is given equals in value that which 
is received. Others have said that, if one party gains, 
it must evidently be by robbing the other party. 
According to this view, trade would consist in trying 
to beggar your neighbour. That which is given does 
really equal in value that which is received, but it 
does not equal it in utility, and to increase utility is 
the purpose of all production and all commerce. We 
do not pay for things in proportion to their usefulness, 
or else air and water would be the most costly of all 
things. A good-sized loaf may be bought for four- 
pence or sixpence, although bread is the staff of life. 
Before attempting to understand this apparent paradox, 
we must settle exactly what we mean by value. 

71. What is Value? In exchanging some goods 
for other goods, there arises the question, How much 
of one kind shall be given for so much of the other ? 
Some things are said to be valuable, as in the case 
of a gold watch or a diamond ring, because in ex- 
change for them we can get a great quantity of other 
articles. Ashes are of little or no value, because we 
cannot get anything in exchange for them. Now this 
word value is a very difficult one, and is employed 
to mean different things. We may say that quinine is 
valuable for curing fevers, that iron is valuable for 
improving the blood, or that water is valuable for 
putting out fires. Here we do not mean valuable in 
exchange, for quinine would cure fevers just as well if 
it cost a penny an ounce instead of some ten shilHngs. 
Water, if we can get it at the right time, puts out a 
fire whether it costs much or little or nothing. It is 
clear, then, that by valuable we often mean valuable 
in use. The words value and valuable are in fact 
ambiguous. (See Logic Primer, pp. 22-26, on The 
Correct Use of Words.) There is value in use 
and value in exchange, and many things 



XL] EXCHANGE. 97 

which would be commonly said to have little 
value in exchange have much value in use. 

But of these meanings, "value in use" is nothing but 
the utility of a thing to us, that is, the utiHty of all 
such portions of it as we can actually employ. Thus, 
the value in use of water means the utility of the water 
that we drink, or wash in, or cook with, or water the 
roads with, and this utility is very great. But of 
course it cannot mean the utility of water which is not 
useful to us, but on the contrary hurtful, as in the case 
of floods, damp houses, wet mines, and so forth. 

We may now see how true was the remark of 
Genovesi, the Italian economist, that "Exchange 
consists in giving the superfluous for the 
necessary," or, as I should prefer to say, the com- 
paratively superfluous for the comparatively 
necessary. He who has more than enough of one 
article has already enjoyed all the good which that 
article can do to him, but he probably needs supplies 
of other articles. The exchange, like an act of mercy, 
blesses both him who gives and him who receives, 
because what each receives in exchange is much 
w^anted and has high utility. In England, for instance, 
we possess a great deal of coal, and France produces 
plenty of good wine. We could have little or no wine 
in England unless we got it from France or some 
foreign country, and France also is much in want of 
coal. It is obvious that there is a great gain of utility 
if we give some of our comparatively superfluous coal 
in exchange for some of the abundant wine of France. 

It has been objected to commerce that it is sterile 
and produces no new goods. There exist neither 
more nor less coal and wine after they are exchanged 
than before. But in political economy we treat of 
utility and wealth ; the question is whether things are 
usefully consumed or not. Now that which is not 
wealth if it were consumed by one person, becomes 
wealth when handed over to another person for con- 
sumption. Though exchange cannot create the 

15* 



98 PRIMER OF POLITICAL ECONOMY. [CH. 

material of wealth, it creates wealth because 
it gives utility to the material. 

72. Value means Proportion in Exchange. 
When we speak of the value of a thing in exchange, 
we mean how much of some other thing we can get 
for it. This of course will depend upon the nature of 
that other thing. Obviously, I can get for a shilling 
much more potatoes than bread, and bread than beef) 
and beef than essence of beef Therefore, when we 
speak of the value of a thing, we ought always to say 
what it is to be valued by. 'The word value only- 
means that so much of one thing is given for 
so much of the other, and it is the proportion 
of these quantities (Latin proportio, from pro, in com- 
parison with, and poi'tio, share), which measures the 
values of the thing. A ton of pig-iron can usually be 
got for a quarter of corn ; here the proportion is one 
to one. To get a ton of copper, we should probably 
have to give thirty quarters of corn ; here the propor- 
tion is that of one to thirty. There cannot be such a 
thing as value in exchange, unless there be proportion 
— so much of one commodity for so much of another. 

Usually, indeed, we measure the values of things by 
their prices. The price is the quantity of 
money which w^e give for a thing ; in this case 
the proportion is between the quantity of money and 
the quantity of goods we get for it, as when we give 
sixty shillings for ten yards of carpet. We shall learn 
later on that money is a kind of commodity, which 
has utility and value like other commodities. But 
there is great convenience in always thinking and 
speaking of values in money, because we can then 
readily compare the value of one thing with that of 
any other. If a pound of potatoes costs one penny, 
a pound of bread threepence, and a pound of beef 
ninepence, we can see at once that a pound of beef is 
of the same value as three pounds of bread and nine 
pounds of potatoes, and we can judge how much of 
each to use. 



XI.] EXCHANGE. ^^ 



73. Laws of Supply and Demand. In the 

next place, we must try to understand how the values 
of things are governed, and made to change from time 
to time. The principal laws which govern values are 
called the laws of supply and demand, and 
they are very important indeed. Supply means the 
quantity of any goods which people are willing to give 
in exchange at a certain value, and demand means 
similarly the quantity of goods which people are willing 
to take in exchange; but, before a person can judge 
how much he wishes to buy of a particular kind of 
goods, he must know its price, that is, its proportion in 
exchange for money. If bread, instead of being three- 
pence per pound, becomes fourpence, a poor person 
would perhaps decide to take less bread, and to buy 
more potatoes. If beef, instead of being ninepence, 
should rise to a shilling, or fourteenpence a pound, 
some people would refuse to buy it altogether, and 
others would buy less than before. The supply of 
things varies similarly j if the price of meat rises high, 
farmers who own cattle bring them to market, in order 
to get a good profit by selling them ; if the price falls 
low, they keep their cattle to sell at another time. 

The Laws of Supply and Demand may be 
thus stated : a rise of price tends to produce a greater 
supply and a less demand ; a fall of price tends to 
produce a less supply and a greater demand. Con- 
versely, an increase of supply or a decrease of demand 
tends to lower price, and a decrease of supply or an 
increase of demand to raise price. 

These laws are so important that I will state them 
over again, in the form of a table : — 



Price. 


Supply. 


Demand. 


Higher. 


Greater. 


Less. 


Lower. 


Less. 


Greater. 



lOO PRIMER OF POLITICAL ECONOMY. [ch. 

We can now understand how the price of any kind 
of goods is decided. The price must be such that 
the quantity demanded at any time is equal to the 
quantity supphed. If those who want goods at a 
certain price, cannot get them, they will have to 
offer a higher price, so that they may induce other 
people to sell. The higher the price the greater the 
supply, as we have seen ; moreover, if some people in 
a market are offering a higher price, it soon becomes 
known to other dealers. When a farmer's wife carries 
a basket of butter to sell at the Butter Cross in the 
neighbouring market town, she soon learns whether 
the supply is greater or less than usual. If the pur- 
chasers are few and slow in buying, she begins to fear 
that she may have to carry her butter back unsold, 
and go without the crockery and calico and other 
things which she intended to buy with the money. 
Then she begins to ask a penny or twopence a pound 
less, and the other sellers of butter are obliged to 
lower their prices also, since no one would buy butter 
from one woman at is. 6d., if he could get it as good 
from the next person at is. 4d. But, if few people 
bring butter to market, or if there are many purchasers 
with money in their pockets, the scene is quite changed. 
Those who have brought butter, find that they will 
have no difficulty in selling all they have ; it is the 
purchasers who now become anxious to buy before all 
is gone, and their eagerness soon shows the sellers 
that they may ask higher prices. It is by this higgling 
of the market, by sellers asking the highest price 
they think they can get, and buyers trying to buy at 
the lowest price which they think will be taken — that 
the market price of any commodity is settled. 

The market price will be such that the 
demand at that price will equal the supply 
at that price. The quantity of butter or any other 
commodity that is sold must equal what is bought, 
because it is not sold until it is bought j but the price 
will settle itself accordingly. 



XL] EXCHANGE. 



101 



74. How Value depends upon Labour. We 

now come to the great question whether value is 
produced by labour, or how it is connected with 
labour. Some economists, observing that, when a 
thing hke gold is very valuable, men spend a great 
deal of labour in getting it, have said that the labour 
spent upon it is the cause of the high value. 
This is quite wrong; for if it were true, any- 
thing, upon which great labour has been spent, ought 
to be very valuable ; everybody knows that such is not 
the case. Great labour may be expended in writing, 
printing, and binding a book ; but, if nobody wants 
the book, it is valueless, except as waste paper. A 
vast amount of labour was spent on building the 
Thames Tunnel, but, as few people wished to go 
through it, the tunnel was of small value, until it was 
required for a railway. Thus it is quite certain that 
we cannot make a thing valuable by simply labouring 
at it ; we must labour in such a way as to make the 
thing useful. 

On the other hand, substances may be very valuable 
which have cost little or no labour. When a shepherd 
in Australia happens to pick up a nugget of gold on 
the mountain side, it takes no labour worth men- 
tioning to pick it up, yet the gold is just as valuable 
in proportion to its weight as any other gold. Some 
gold mines produce a great quantity of gold : others 
which have cost quite as much to sink, produce little ; 
nevertheless the gold out of the one mine is sold at 
the same price in proportion to its weight and fineness 
as that out of the other mine. Thus it is quite 
certain that labour is not the cause of value. 
Gold is valuable because a great many people want 
more gold than they have already got, and whenever 
a thing is valuable it is because somebody wants it. 

But we may look at this matter in another way. If 
it were possible to get a valuable thing hke gold with 
little labour, many people would become gold miners. 
Much gold would then be produced ; H this were 



102 PRIMER OF POLITICAL ECONOMY. [ch. 

wanted as much as what was already in use, it would 
be as valuable. But no one wants an unlimited 
quantity of any substance. Wealth, as we saw, must 
be limited in supply ; if gold became as plentiful as 
lead or iron, it could not possibly remain as valuable 
as it is now. People would have far more than they 
could employ for ornaments, watches, gilding and so 
forth ; there would be a large surplus to be used in 
making pots and pans, for which it is less needed. 
Now we can see through the whole subject of value. 
When much of a substance can usually be produced 
with little labour, the substance becomes so plentiful 
that people are satisfied with the supplies of it which 
they have ; they do not want more, or at least do not 
want it so urgently. It follows that they are unwilling 
to give much wealth for it. Thus the labour spent 
upon producing a commodity does not affect the value 
of that commodity, unless it alters the quantity of it 
which people can get, and thus makes a further supply 
of the commodity more or less useful than before. 

75. Why Pearls are valuable. To make this 
still more plain, let us endeavour to answer this 
difficult question, "Do men dive for pearls because 
pearls fetch a high price, or do pearls fetch a high 
price because men must dive in order to get them?" 
Pearl-diving is a very dangerous and laborious kind of 
work. The divers have to jump into the deep sea 
with heavy weights to carry them down, and they must 
hold their breath a long time while they are engaged 
in collecting the oyster shells at the bottom. The 
number of good pearls which they generally get is" 
small compared with the great toil of getting them. 
It follows that, on the average, they must receive a 
high price for what they do find, otherwise they would 
not have adequate wages for such work. But this 
alone is not a sufficient reason for the pearls being so 
valuable, otherwise the mother of pearl shells, in 
which the pearls are found, and brought up, would 
be as valuable as the pearls. But mother of pearl is 



XL] EXCHANGE. 103 

a very cheap substance. Again, if it were merely a 
question of labour, a diver might go down anywhere, 
and, bringing up the first stone or shell he found, insist 
on selling it for a high price, because he had dived 
for it. The truth is, that pearls are valuable because 
there are many ladies who have not got pearl neck- 
laces, and who would like to have them ; and those 
who have some pearls would hke to get more and 
finer ones. In short, then, pearls are valuable be- 
cause they are useful to ladies who want more pearl 
ornaments : they are thus useful because the ladies 
have not hitherto been able to get as many as they 
would like ; and they have not been able to get 
many, because it is so diflicult to fish them up from 
the bottom of the sea. Here we have the whole 
theory of value and labour. The labour which 
is required to get more of a commodity 
governs the supply of it ; the supply deter- 
mines whether people do or do not want 
more of it eagerly ; and this eagerness of 
want or demand governs value. 

CHAPTER XH. 
MONEY. 

76. Barter. When exchanges are made by giving 
one ordinary commodity for another, as a sack of corn 
for a side of bacon, or a book for a telescope, we are 
said to barter them. The operation is also called 
truck (French, troc, barter). Among uncivilised 
races trade is still carried on in this way ; a traveller 
going into the interior of South Africa takes a stock of 
beads, knives, pieces of iron, looking-glasses, &c., in 
order that he may always have something which the 
natives will like to receive in exchange for food or 
services. People still occasionally barter things in 
England, or the United States, but this is seldom 
done, owing to the trouble which it gives. 

If, for instance, I want a telescope, in exchange for 



104 PRIMER OF POLITICAL ECONOMY. [ch. 

a book, I shall probably have to make many inquiries, 
and to wait a long time before I meet with a person 
who has a telescope to spare, and who is also willing 
to take my book in exchange. It is very unlikely 
that he who has a telescope will just happen to want 
that particular book. A second difficulty is, that the 
book will probably not be worth just as much as the 
telescope, and neither more nor less. He who owns 
a valuable telescope cannot cut it up, and sell a part 
to one and a part to another j this would destroy its 
value. 

77. Convenience of Money. With the aid of 
money all the difficulties of barter disappear ; for 
money consists of some commodity which 
all people in the country are willing to re- 
ceive in exchange, and w^hich can be divided 
into quantities of any amount. Almost any 
commodity might be used as money in the absence 
of a better material. In agricultural countries corn 
was so used in former times. Every farmer had a 
stock of corn in his own granary, and if he wanted to 
buy a horse or cart, he took so many sacks of corn 
to his neighbour's granary in exchange. Now suppose 
that, with corn as money, a farmer wanted to part 
with a cart and get a plough instead; he need not 
inquire until he finds a person willing to receive a 
cart, and give a plough in exchange. It is sufficient 
if he find one farmer who will receive a cart and give 
corn, and any other farmer who will give a plough 
and receive corn. No difficulty arises, too, if the 
cart or plough are not of equal value ; for if the cart 
be the more valuable, then the farmer finally gets for 
it the plough together with enough corn to make up 
the difference. Money thus acts as a medium of 
exchange ; it is a go-between, or third term, and it 
facilitates exchange by dividing the act of barter into 
two acts, in this way — 

Sale. Purchase. 

Cart. Money. Plough. 



XII.] MONEY. 



105 



No doubt it turns one act of exchange into two ; 
but the two are far more easy to manage than one, 
because they need not be made with the same person. 
78. Money as a Measure of Value. When 
money is used in exchange, he who receives money is 
said to sell goods, and he who pays money is said 
to buy or to purchase. In each case there is an 
act of exchange, and sales and purchases are not really 
different in nature from acts of barter, except that one 
of the commodities given or received is employed for 
the purpose of arranging the exchange. Thus money 
may be called current commodity, because it is 
merchandise chosen to run about as a medium of 
exchange. Now, in every purchase or sale there must 
be some proportion between the quantity of the 
money, and the quantity of the other commodity. 
This proportion expresses the value of the one com- 
modity as compared with the other. Value in ex- 
change means nothing but this proportion, as was 
before explained (section 72). Now when money is 
used, the quantity of money given or received for a 
certain quantity of goods is called the price of 
that goods, so that the price is the value of goods 
stated in money. But as money when once introduced 
is used in almost every act of exchange, a further great 
advantage arises. We are able to compare the value 
of any commodity with that of any other commodity. 
If we know how much copper may be had for so much 
lead ; how much iron for so much steel ; and so on 
with zinc and brass, bricks and timber, and so forth, 
it would not be possible to compare the value of 
copper with zinc, or iron with timber. But if we 
know that for one ounce of gold we can get 950 ounces 
of tin, 1,700 ounces of copper, 6,400 ounces of lead, 
and 16,000 ounces of wrought iron, then we learn 
without any trouble that for 1,700 ounces of copper we 
can get 16,000 ounces of iron, and so on. Thus gold 
or any other substance used as money serves as a 
common measure of value; it measures the value 



io6 PRIMER OF POLITICAL ECONOMY. [ch. 

of every other commodity, and thus enables us to 
compare the value of each commodity with that of 
every other. 

This is an immense convenience. It leads every 
one to think and speak of the values of things in terms 
of a money known to everybody. All lists of values 
of goods are given as lists of prices and everybody 
understands these prices and can compare the prices 
in one list with those in another. Money may then be 
said to have two chief functions. It serves as 
(i) A medium of exchange. 
(2) A common measure of value. 

But it is important to remember that, though money 
thus acts in a very useful and peculiar way, it never 
ceases to be a commodity. Its value is subject to the 
laws of supply and demand already stated (section 
73) ; if the quantity of money increases, its value is 
likely to decrease, so that more money is given for the 
same commodity, and vice versa. 

79. What Money is made of. As already 
remarked almost any commodity may be used as 
money, and in different ages all kinds of things such 
as wine, eggs, olive oil, rice, skins, tobacco, shells, 
nails, have actually been employed in buying and 
selling. But metals are found to serve much the best 
for several reasons, and gold and silver are better 
for the purpose than any of the other metals. The 
advantages of having gold and silver money are 
evident. Such metals are portable, because they 
are so valuable that a small weight of metal equals in 
value a great weight of corn or timber or other goods. 
Then they are indestructible, that is, they do not 
rot like timber, nor go bad like eggs, nor sour like 
wine; thus they can be kept for any length of time 
without losing their value. Another convenience is, 
that there is no difference in quality in the metal 
itself; pure gold is always the same as pure gold, and 
though it may be mixed with more or less base metal, 
yet we can assay or analyse the mixture, and ascertain 



XII.] MONEY. 107 

how much pure metal it contains. The metals are 
also divisible ; they may be cut or coined into 
pieces, and yet the pieces taken together will be as 
valuable as before they were cut up. It is a further 
advantage of gold and silver that they are such 
beautiful, brilliant substances, and gold is also so 
heavy that it is difficult to make any counterfeit gold, 
or silver ; with a little experience and care, every one 
can tell whether he is getting real money or not — 
when the money is made of gold or silver. Finally, it 
is a great convenience that these metals do not 
change in value rapidly. A bad harvest makes 
corn twice as dear as before, and destructible things, 
like eggs, skins, &c., are always rising or falHng in 
value. But gold and silver change slowly in value, 
because they last so long, and thus the new supply 
got in any one year is very little compared with the 
whole supply or stock of the metal. Nevertheless, 
gold and silver, like all other commodities, 
are always changing in value more or less 
quickly. 

80. Metallic Money. Almost all the common 
metals — copper, iron, tin, lead, &c. — have been used 
to make money at one time or other, besides various 
mixtures, such as brass, pewter, and bronze. But 
copper, silver, and gold have been found far more 
suitable than any of the other metals. Copper, indeed, 
being comparatively low in value, is wanting in por- 
tability. It was formerly the only money of Sweden, 
and I have seen a piece of old Swedish money con- 
sisting of a plate of copper about two feet long and 
one foot broad, A merchant making payments in 
such money had to carry his money about in a wheel- 
barrow. Now we use copper only for coins of small 
value, and to make the copper harder, it is melted 
up with tin and converted into bronze. 

In the Saxon times English money was made of 
silver only, but this was inconvenient both for very 
large and for very small payments. The best way is 
10 



io8 PRIMER OF POLITICAL ECONOMY. [ch. 

to use gold, silver, and bronze money according as 
each is convenient. In the English system of 
money, gold is the standard money and the 
legal tender, because no one can be obliged to 
receive a large sum of money in any other metal. If 
a person owes a hundred pounds, he cannot get rid of 
the debt without tendering or offering a hundred 
pieces of coined gold to his creditor. Silver coin is a 
legal tender only to the amount of forty shilHngs — 
that is, no creditor can be obliged to receive more 
than forty shillings in a single payment. Similarly, 
bronze coin is a legal tender only up to the amount 
of one shiUing in all. 

8 1. What is a Pound Sterling? In England 
people are continually paying and receiving money in 
pounds, but few could say exactly what a pound 
sterling means. No doubt it is represented by a coin 
called a sovereign, but what is a sovereign ? Strictly 
speaking, a sovereign is a piece of gold coined, 
in accordance with an Act of Parliament, at 
a British mint, still bearing the proper stamp 
of that mint, and weighing not less than i22| 
grains. On the average the sovereigns issued from 
the mint ought to weigh 123*274 grains, but it is 
impossible to make each coin of that exact weight, 
and if this were done, the coins would soon be lessened 
in weight by wear. A sovereign is legal tender for a 
pound as long as it weighs 122^ grains or more, and 
is not defaced ; but, in reality, people are in the habit 
lOf paying and receiving sovereigns which are several 
grains less in weight than the law requires. 

Twenty silver shillings are by law to be received as 
equal in value to a pound. This is necessary, in order 
that we may be able to pay a fraction of a pound, for a 
coin made of gold equal to the twentieth part of a pound 
would easily be lost, worn, or even blown away. But 
the silver in twenty shillings is not equal in value 
to the gold in a pound; its value varies with the 
gold price of silver, and, at present, twenty shillings 



XII. J MONEY. 



109 



are only worth about sixteen gold shillings and eight- 
pence, that is, I of a pound. It is necessary to make 
the silver coin thus of less value than it is taken 
for, in order to render it unprofitable to melt the 
coin. In the same way, the metal in a bronze penny 
is worth only about the sixth part of a penny, so that 
people would lose a great deal by melting up or 
destroying pence. 

82. Paper Currency. Instead of using actual 
coins of gold, silver, or bronze, it is common to make 
use of paper notes containing promises to pay money. 
When the sum of money to be paid is large, a bank 
note is much more convenient, being of far less 
weight than the coins, and less likely to be stolen. A 
five-pound bank note is a promise to pay five pounds 
to any person who has the note in his possession, and 
who asks for five pounds in exchange for the note at 
the ofiice of the bank issuing the note. A conver- 
tible bank note is one which actually can be thus 
changed into the coins whenever it is desired, and so 
long as this is really the case, it is evident that the 
note is just as valuable as the coins, and is more 
convenient. ^ The only fear is that, if a banker be 
allowed to issue these bank notes, he will not always 
have coins enough to pay them when presented. 
Very frequently banks have been obliged to stop 
payment ; that is, to refuse to perform their promises. 
Nevertheless, when there is no other currency to be had, 
the bank notes often go on circulating like money. They 
are then called inconvertible notes, and there is 
said to be a paper money. A person is willing to 
receive paper currency in exchange for goods, if he 
believes that other people will take it from him again. 
But such paper currency is very bad, because its value 
will rise or fall according to the quantity issued, and 
people who owe money will often be able to pay their 
debts with less value than they received. The sub- 
ject of bank notes ?nd paper money, however, is too 
difficult for us to pursue in this Primer. 



no PRIMER OF POLITICAL ECONOMY. [ch. 

CHAPTER XIII. 
CREDIT AND BANKING. 

Zt^. What Credit means. It is very important 
for those who would learn political economy to 
understand exactly what is meant by credit. John 
is said to give credit to Thomas when John leaves 
some of his property in the use of Thomas, expecting 
to have it returned at a future time. In short, any 
one who lends a thing gives credit, and he who 
borrows it receives credit. The word credit 
means belief, and John believes that he will get 
back his property from Thomas, though this, unfor- 
tunately, does not always prove to be the case. John 
is called the creditor, and Thomas the debtor. 

It is not common, indeed, to speak of credit in the 
case of most articles : when a man borrows a horse, a 
book, a house, an engine, or other common article, 
and pays for its use, he is said to hire it, and what 
he pays for the use is called the hire, fare, or rent. 
In some countries, where coins are not yet used, 
people lend and borrow corn, oil, wine, rice, or any 
common commodity which all like to possess. In the 
parts of Africa where palm oil is produced in great 
quantities, people give and take credit in oil. But 
in all civilised countries it has become the practice 
to borrow and lend money. If a man needs an 
engine, and has nothing to buy it with, he goes and 
borrows money enough from the person who will lend 
it on the lowest terms, and then he buys the engine 
where he can get it most cheaply. Frequently, indeed, 
the man who sells the engine will give credit for its 
price, that is, will lend the sum of money to the buyer, 
just sufficient to enable him to buy it. 

Credit is a very important thing, because, when 
properly employed, it enables property to be put 
into the hands of those who will make the 
best use of it. Many people have property but are 



XIII.] CREDIT AND BANKING. 1 1 1 

unable to go into business, as is the case with women, 
children, old men, invalids, &c. Rich people perhaps 
have so much property that they do not care to trouble 
themselves with business, if they can get others to take 
the trouble for them. Even those who are engaged in 
business often have sums of money which they do not 
immediately want to use, and which they are willing 
to lend for a short time. On the other hand, there 
are many clever active men, who could do a great deal 
of work in establishing manufactories, sinking mines, 
or trading in goods, if they only had enough money to 
enable them to buy the requisite materials, tools, 
buildings, land, &c. A man must have some property 
of his own before he can expect to get credit ; but 
with some property to fall back upon in case of need, 
and with a good character for honesty and ability, a 
trader can by credit obtain other people's capital to 
deal with. 

84. Loans on Mortgage. Credit is given in 
many different ways ; sometimes a man is assisted by 
a permanent loan from a relative or friend who has 
confidence in him. Enormous sums of money are 
lent, as it is called, upon mortgage. A man, for 
instance, who has built a cotton mill with his own 
money, pledges the mill as security for a loan, that is, 
he gives his creditor a right to sell the mill unless the 
debt is paid when required. The mill is called a 
mortgage or dead pledge, because it becomes 
dead to the former owner, if he breaks the conditions 
of the loan. There are many institutions, such as 
insurance companies, building societies, &:c., which 
have a great deal of capital to lend on mortgage, and 
many rich people invest their money in the same way. 
Thus a very large part of the houses, land, factories, 
shops, &c., are not really owned by the people who 
seem to own them, but by mortgagees, who have 
lent money on them. 

Generally speaking, the interest paid for such loans 
is 4^ or 5 per cent, per annum, when the security is 



1 1 2 PRIMER OF POLITICAL ECONOMY. [ch. 

quite good, that is, when the property mortgaged is 
sure to sell for more than is lent upon it. A consider- 
able margin is always left to cover mistakes or alter- 
ations as regards the value of the property ; thus, if a 
house be said to be worth ;!^iooo, it will usually be 
security only for a debt of jQ'^oo or £ioo. When 
the security is not so good, because the ownership or 
the value of the property mortgaged is doubtful, the 
rate of interest charged will be higher, and may be 
six, seven, or more per cent. The surplus covers the 
risk, that is, compensates the lender, for the chance of 
losing what he lends. Mortgage loans are generally 
made upon fixed capital like houses, mills, ships, &c., 
which last a long time ; but sometimes stocks of goods, 
such as cotton, wine, corn, &c., are mortgaged as 
security for temporary loans. 

85. Banking. A large part of the credit given, in 
a civilised country, is given by bankers, who may be 
said to deal in credit, or which comes to the same 
thing, in debt. A banker usually carries on three 
or four different kinds of work, but his proper work 
is that of borrowing from persons who have ready 
money to lend, and lending it to those who want 
to buy goods. As a shopkeeper sells his stock of 
goods, he receives money for it. And, until he 
buys a new stock, he has no immediate need of this 
money. Those, again, who receive salaries, dividends, 
rents, or other payments once a quarter, do not usually 
want to spend the whole at once. Instead of keeping 
such money in a house, where it pays no interest and 
is liable to be stolen, lost, or burnt, it is much better 
to deposit it with a banker, that is, to lend it to a 
banker who will undertake to pay it back when it is 
wanted. Generally speaking a merchant, manufacturer, 
or tradesman sends to his banker every day the money 
which he has received, and only keeps a few pounds 
to give change or make petty payments. The advan- 
tages of thus depositing money with the banker are 
chiefly as follows : — 



XIII.] CREDIT AND BANKING 113 



(i.) The money is safe, as the banker provides 
strong rooms, locked and guarded at night. 

(2.) It is easy to pay the money away by means of 
cheques or written orders entitUng the persons named 
therein to demand a specified sum of money from the 
banker. 

(3.) The banker usually allows some interest for the 
money in his care. 

Bankers receive deposits on various terms ; some- 
times the depositor engages to give seven days' notice 
before withdrawing his deposit ; in other cases the 
money is lent to the banker for one, three, or six 
months certain, and the longer the time for which it is 
lent the better the rate of interest the banker can 
usually give. But a great deal of money is deposited 
on current account, that is, the customer puts his 
money into the bank, and draws it out just when he 
likes, without notice. In this case the banker gives 
very little interest, or none at all, because he has to 
keep much of the money ready for his customers, not 
knowing when it will be wanted. 

Nevertheless, while some depositors are drawing 
their money out, others will be putting more in, and it 
is exceedingly unlikely that all the thousands of cus- 
tomers of a large bank will want their deposits at the 
same time. Thus it happens that the banker, in addi- 
tion to his own capital, has a large stock of money 
always on hand, and he makes profit by lending out 
this money to other customers, who need credit. 

There are various ways in which a banker arranges 
his loans ; sometimes he lends upon the mortgage of 
goods, houses, and other property, or of shares in 
railways and government funds, in the way described ; 
but this is not a proper way for a banker to employ 
much of his funds, because he may not be able to get 
back such loans rapidly enough when he needs them. 
One of the simplest ways of lending money is to allow 
customers to overdraw their accounts, that is, to draw 
more money out of the bank than they have put in. 
16* 



114 PRIMER OF POLITICAL ECONOMY. [CH. 

But a banker naturally takes care not to allow over- 
drafts unless he has great confidence in his customer, 
or has received a guarantee of repayment from him or 
his friends. 

86. Discount of Bills. The most common and 
proper way in which a banker gives credit and em- 
ploys his funds is in the discount of bills, that is, in 
advancing money in exchange for a definite promise 
to pay it back at a stated time. Suppose that John 
Smith has sold a thousand pounds worth of cotton 
goods to Thomas Jones, a -shopkeeper ; several 
months will pass perhaps before Jones can sell the 
goods over the counter, and if he has not much 
capital, he agrees that John Smith shall give credit 
for the thousand pounds, but in the mean time draw 
a bill upon Jones. This bill would very likely be 
somewhat in this form — 

London, ist February, 1878. 
£\OQO, OS. od. 

Three months after date pay to me or my order the 
sum of one thousand pounds, value received. 

JOHN SMITH. 
To Mr. Thomas Jones. 

John Smith is said to be the drawer of the bill ; 
Thomas Jones is the drawee, and the bill amounts 
to a claim on the part of John Smith that Thomas 
Jones owes him the sum named. If the drawee 
acknowledges that this is the case, he signifies it when 
the bill is presented to him, by writing on the back 
the word " accepted," together with his name. 

Now if the drawer and drawee of a bill are persons 
of good credit, a banker will readily discount such a 
bill, that is, buy it up for the sum due, after subtracting 
interest at the rate of say five per cent, per annum for 
the length of time the bill has to run. The bill forms 
good security, because, when accepted, John Smith is 
bound to pay the thousand pounds when due, and if 
he fails, the drawee is liable. Such bills are often 



XIII.] CREDIT AND BANKING. 115 

bought by one person after another, being endorsed 
by each to the next, that is, impressed with an order 
that the money shall be paid to the next person 
named. When dne the last owner must claim the 
money from John Smith, and if he refuses to 
pay, each owner has a claim upon the previous 
owners. 



CHAPTER XIV. 

CREDIT CYCLES. 

87. Industry is Periodic. Everybody ought to 
understand that trade varies in activity, _ from time 
to time, m a periodic manner. A thing is said to 
vary periodically, when it comes and goes at 
nearly equal intervals like the sun, or rises and 
falls like the tides. Now, in industry, as Mr. William 
Langton pointed out twenty years ago, there are tides 
almost as regular as those of the sea. Shakespeare 
says truly — 

*' There is a tide in the affairs of men, 
Which, taken at the flood, leads on to fortune." 

Some of these tides depend upon the seasons of the 
year ; business is more active in the spring and sum- 
mer, and falls off in winter. It is comparatively easy 
to borrow money in January, February, March, June, 
July, August, and September ; October and November 
are particularly bad months ; the rate of interest then 
often runs up rapidly, and the bankruptcies in these 
months are more numerous than at any other time of 
year. April and May are also dangerous months, but 
in a less degree. Men of business should always bear 
these facts in mind, and, by being prepared before- 
hand, they may escape disaster. 

There is also a much longer kind of tide in business, 
which usually takes somewhere about ten years to rise 
and fall. The cause of this tide is not well understood, 



Il6 PRIMER OF POLITICAL ECONOMY. [CH. 

but there can be no doubt that in some years men 
become confident and hopeful. They think that the 
country is going to be very prosperous, and that if 
they invest their capital in new factories, banks, rail- 
ways, ships, or other enterprises, they will make much 
profit. When some people are thus hopeful, others 
readily become so too, just as a few cheerful people in 
a party make everybody cheerful. Thus the hopeful- 
ness gradually spreads itself through all the trades of 
the country. Clever men then propose schemes for 
new inventions and novel undertakings, and they find 
that they can readily get capitalists to subscribe for 
shares. This encourages other speculators to put 
forth proposals, and when the shares of some com- 
panies have risen in value, it is supposed that other 
shares will do so likewise. The most absurd schemes 
find supporters in a time of great hopefulness, 
and there thus arises what is called a bubble or 
mania. 

88. Commercial Bubbles or Manias. When 
the schemes started during a bubble begin to be carried 
out, great quantities of materials are required for 
building, and the prices of these materials rise rapidly. 
The workpeople who produce these materials then 
earn high wages, and they spend these wages in better 
living, in pleasure, or in buying an unusual quantity 
of new clothes, furniture, &c. Thus the demand for 
commodities increases, and tradespeople make large 
profits. Even when there is no sufficient reason, the 
prices of the remaining commodities usually rise, as it 
is called, by sympathy, because those who deal in 
them think their goods will probably rise like other 
goods, and they buy up stocks in the hope of making 
profits. Every trader now wants to buy, because he 
believes that prices will rise higher and higher, and 
that, by selling at the right time, the loss of any 
subsequent fall of prices will be thrown upon other 
people. 

This state of things, however, cannot go on very 



XIV.] CREDIT CYCLES. Hy 



long. Those who have subscribed for shares in new 
companies have to pay up the calls, that is, find 
the capital which they promised. They are obliged 
to draw out the money which they had formerly 
deposited in banks, and then the bankers have less to 
lend. Manufacturers, merchants, and speculators, 
who are making or buying large stocks of goods, wish 
to borrow more and more money, in order that they 
may have a larger business, the profit seeming likely to 
be so great. Then according to the laws of supply 
and demand, the price of money rises, which means 
that the rate of interest for short loans, from a week 
to three or six months in duration, is increased. The 
bubble goes on growing, until the more venturesome 
a_nd unscrupulous speculators have borrowed many 
times as much money as they themselves really pos- 
sess. Credit is said to be greatly extended, 
and a firm, which perhaps owns a capital worth ten 
thousand pounds, will have undertaken to pay two or 
three hundred thousand pounds, for the goods which 
they have bought on speculation. 

But the sudden rise which, sooner or later, occurs 
in the rate of interest, is very disastrous to such specu- 
lators; when they began to speculate interest was, 
perhaps, only two or three per cent. ; but when it be- 
comes seven or eight per cent, there is fear that much 
of the profit will go in interest paid to the lenders of 
capital. Moreover, those who lent the money, by dis- 
counting the speculators' bills, or making advances on 
the security of goods, become anxious to have it paid 
back. Thus the speculators are forced at last to 
begin selling their stocks, at the best prices they can 
get. As soon as some people begin to sell in this 
way, others who hold goods think they had better sell 
before the prices fall seriously; then there arises a 
sudden rush to sell, and buyers being alarmed, refuse 
to buy except at much reduced rates. The bad specu- 
lators now find themselves unable to maintain their 
credit, because, if they sell their large stocks at a con- 



Ii8 PRIMER OF POLITICAL ECONOMY. [CH. 

siderable loss, their own real capital will be quite 
insufficient to cover this loss. They are thus unable 
to pay what they have engaged to pay, and stop pay- 
ment, or, in other words, become bankrupt. This is 
very awkward for other people, manufacturers, for in- 
stance, who had sold goods to the bankrupts on credit ; 
they do not receive the money they expected, and as 
they also perhaps have borrowed money while making 
the goods, they become bankrupt likewise. Thus the 
discredit spreads, and firms even which had borrowed 
only moderate sums of money, in proportion to their 
capital, are in danger of failing. 

89. Commercial Crisis or Collapse. The state 
of things described in the last section is called a com- 
mercial collapse, because there is a sudden falling 
in of prices, credit, and enterprise. It is 
also called a Crisis, that is, a dangerous and 
decisive moment (Greek, KptVw, to decide), when 
it will soon be seen who is to become bankrupt, 
and who not. No sooner has such a crisis arrived, 
than everything changes. No one ventures to propose 
a new scheme, or a new company, because he knows 
that people in general have great difficulty in paying 
up what they promised to the schemes started during 
the bubble. This bubble is now burst, and it is 
found that many of the new works and undertakings 
from which people expected so much profit, are absurd 
and hopeless mistakes. It was proposed to make 
railways where there was nothing to carry'; to sink 
mines where there was no coal nor metal ; to build 
ships which would not sail ; all kinds of impracticable 
schemes have to be given up, and the capital spent 
upon them is lost. 

Not only does this collapse ruin many of the 
subscribers to these schemes, but it presently causes 
workpeople to be thrown out of employment. The 
more successful schemes indeed are carried out, and, 
for a year or two, give employment to builders, iron- 
manufacturers, and others, who furnish the materials. 



XIV.] CREDIT CYCLES. II9 

But as these schemes are completed by degrees, no 
one ventures to propose new ones ; people have been 
frightened by the losses and bankruptcies and frauds 
brought to light in the collapse, and when some 
people are afraid, others readily become frightened 
likewise by sympathy. In matters of this kind men 
of business are much like a flock of sheep which fol- 
low each other without any clear idea why they do so. 
In a year or two the prices of iron, coal, timber, &c., 
are reduced to the lowest point ; great losses are 
suffered by those who make or deal in such materials, 
and many workmen are out of employment. The 
working classes then have less to spend on luxuries, 
and the demand for other goods decreases ; trade in 
general becomes depressed ; many people find them- 
selves paupers, or spend their savings accumulated 
during previous years. Such a state of depression 
may continue for two or three years, until speculators 
have begun to forget their failures, or a new set of 
younger men, unacquainted with disaster, think they 
see a way to make profits. During such a period of 
depression, too, the richer people who have more in- 
come than they spend, save it up in the banks. 
Business men as they sell off their stocks of goods 
leave the money received in the banks ; thus by 
degrees capital becomes abundant, and the rate of 
interest falls. After a time bankers, who were so 
very cautious at the time of the collapse, find it neces- 
sary to lend their increasing funds, and credit is 
improved. Then begins a new credit cycle, which 
probably goes through much the same course as the 
previous one. 

90. Commercial Crises are Periodic. It 
would be a very useful thing if we were able to foretell 
when a bubble or a crisis was coming, but it is evidently 
impossible to predict such matters with certainty. All 
kinds of events — wars, revolutions, new discoveries, 
treaties of commerce, bad or good harvests, &:c. — may 
occur to decrease or increase the activity of trade. 
11 



I20 PRIMER OF POLITICAL ECONOMY. [CH. 

Nevertheless, it is wonderful how often a great 
commercial crisis has happened about ten 
years after the previous one. During the last 
century, when trade was so different from what it now 
is, there were crises in or near the years 1753, 1763, 
1772 or '3, 1783, and 1793. In this century there 
have been crises in the years 1815, 1825, 1836-9, 
1847, 1857, 1866, and there would probably have 
been a crisis in 1876 or 1877 had it not been for an 
exceptional collapse in America in 1873. There is 
at present (February, 1878) the great depression of 
trade which marks the completion of one cycle and 
the commencement of a new one. 

Good vintage years on the continent of Europe, 
and droughts in India, recur every ten or eleven years, 
and it seems probable that commercial crises are 
connected with a periodic variation of weather, affect- 
ing all parts of the earth, and probably arising from 
increased waves of heat received from the sun at 
average intervals of ten years and a fraction. A 
greater supply of heat increases the harvests, makes 
capital more abundant and trade more successful, and 
thus helps to create the hopefulness out of which a 
bubble arises. A falling off in the sun's heat 
makes bad harvests and deranges many enterprises 
in different parts of the world. This is likely to 
break the bubble and bring on a commercial 
collapse. 

Generally, a credit cycle, as Mr. John Mills of 
Manchester has called it, will last about ten years. 
The first three years will witness depressed trade, 
with want of employment, falling prices*, low rate of 
interest, and much poverty; then there will be perhaps 
three years of active, healthy trade, with moderately- 
rising prices, a reasonable rate of interest, fair employ- 
ment, and improving credit; then come some years of 
unduly-excited trade, turning into a bubble or mania, 
and ending in a collapse, as already described. This 
collapse will occupy the last of the ten years, so that 



XIV.] 



CREDIT CYCLES. 



121 



the whole credit cycle will, on the average, be as 
follows : — 



Years. 


I 1 2 1 3 


4 1 5 1 6 


7 1 8 1 9 1 lo 1 


Depressed 
Trade. 


Healthy 
Trade. 


Excited 
Trade. 




c3 



It is not to be supposed that things go as 
regularly as is here stated; sometimes the cycle 
lasts only nine, or even eight years, instead of ten; 
minor bubbles and crises sometimes happen in the 
course of the cycle, and disturb its regularity. Never- 
theless, it is wonderful how often the great collapse 
comes at the end of the cycle, in spite of war or peace 
or other interfering causes. 

91. How to avoid Loss by Crises. Now, 
these bubbles and crises are very disastrous things; 
they lead to the ruin of many people, and there are few 
old famihes who have not lost money at one collapse or 
another. The working-classes are often much injured; 
many are thrown out of employment, and others, not 
seeing why their wages should be reduced, make 
things worse by strikes, which, after a collapse, cannot 
possibly succeed. It is most important, therefore, 
that all people — working-people, capitalists, specu- 
lators, and all connected with any kind of business — 
should remember that very prosperous trade is 
sure to be followed by a collapse and by 
bad trade. When, therefore, things look particularly 
promising, investors should be unusually careful into 
what undertakings they put their money. As a 
general rule, it is foolish to do just what 
other people are doing, because there are 
almost sure to be too many people doing 
the same thing. If, for instance, the price of coal 
rises high, and coal-owners make large profits, there 



122 PRIMER OF POLITICAL ECONOMY. [CH. 

are certain to be many people sinking new mines. 
Such a time is just the worst one for buying shares in 
a coal-mine, because, in the course of a few years, 
there will be a multitude of new mines opened, the 
next collapse of trade will decrease the demand for 
coal, and then there will be great losses in the coal 
business. This is what has happened in the last few 
years in England, and the same thing has happened 
over and over again in other trades, As a general- 
rule, the best time to begin a new factory, 
mine, or business of any kind, is when the 
trade is depressed, and when wages and 
interest are low. Mining, building, or other 
work can then be done more cheaply than at other 
times, and the new works will be ready to start just 
when business is becoming active and there are few 
other new works opening. 

This rule, indeed, does not apply to the schemers, 
speculators, or promoters, as they are called, who 
start so many companies. These people make it their 
business to have new schemes and shares to offer just 
when people are in a mind to buy, that is, during a 
bubble or time of excited trade. They take care to 
sell their own shares before the collapse comes, and it 
is their dupes who bear all the loss. A prudent man, 
therefore, would never invest in any new thing during 
a mania or bubble ; on the contrary, he would sell all 
property of a doubtful or speculative value, when its 
price is high, and invest it in the very best shares or 
government funds, of which the value cannot fall much 
during the coming collapse. The wisest men have 
been deluded during manias; and in the Library of the 
Royal Society is shown a letter from Sir Isaac Newton 
requesting a friend to buy shares for him in the South 
Sea Company, just at the moment when the South Sea 
Bubble was at its worst. Let people take warning by 
Sir Isaac Newton, and never speculate in a thing 
because other people are doing the same ; then these 
bubbles and collapses will be prevented, or will become 



XIV.] CREDIT CYCLES. 



123 



much less disastrous. Credit cycles will go on until 
the public learn to look out for them, and act accord- 
ingly. Business men must become bold during de- 
pressed trade, careful during excited trade, instead of 
acting exactly in the opposite way. It is only a know- 
ledge of these credit cycles which can prevent them, 
and this is the reason why I have said so much about 
them in this Primer. 



CHAPTER XV. 
THE FUNCTIONS OF GOVERNMENT. 

92. Functions mean performances (Latin, fungi, 
functus, to perform), and the functions of government 
mean those things which a government ought to do, 
— the duties which it undertakes to perform, or the 
services which it may be expected to render to the 
people governed. These functions are commonly 
divided into two classes — 

(i) The necessary functions. 
(2) The optional functions. 

The necessary functions of a government are 
such as it is obliged to undertake ; thus it must defend 
the nation against foreign enemies, it must keep the 
peace within the country, and prevent insurrections 
which might threaten the existence of the government 
itself; it must also punish evildoers who break the 
laws, and try to become rich by robbery ; it must also 
maintain law courts in which the disputes of its subjects 
can be fairly decided, and set at rest. These are far 
from being all the necessary functions. 

The optional functions of government consist 
of those kinds of work which a government can 
execute with advantage, slich as providing a good 
currency, establishing a uniform system of weights and 
measures, constructing and maintaining the roads, 
carrying letters through a national post office, keeping 
up a national observatory and a meteorological office, 



124 PRIMER OF POLITICAL ECONOMY. [ch. 

&c. The optional functions are in fact very numerous, 
and there is hardly any end to the things which one 
government or another has provided for the people. 
It would be a most important work, if it were possible, 
to decide exactly what undertakings a government 
should take upon itself, and what it should leave to the 
free action of other people ; but it is impossible to lay 
down any precise rules upon this subject. The char- 
acters and habits and circumstances of nations diifer 
so much, that what is good in one case might be bad 
in another. Thus in Russia the government makes 
all the railways, and the same is the case in the 
Australian States ; but it does not at all follow that, 
because this is necessary or desirable in those coun- 
tries, therefore it is desirable in England, or Ireland, 
or the United States. Experience shows that though 
the EngHsh Post Office is very profitable, the Postal 
Telegraphs cannot at present be made to pay. There 
can be no doubt that it would be altogether 
ruinous to put the enormous system of 
English railways under the management 
of government officers. Each case has thus to 
be judged upon its own merits, and all that the 
political economist can do is to point out the general 
advantages and disadvantages of government manage- 
ment. 

93. The Advantage of Government Man- 
agement. There is often immense economy in having 
a single establishment to do a certain kind of work 
for the whole country. For instance, a weather office 
in London can get daily telegraphic reports of the 
weather in all parts of the kingdom and many parts of 
Europe; combining and comparing these reports it 
can form a much better opinion about the coming 
weather than would be possible to private persons, and 
this opinion can be rapidly made known by the tele- 
graph and newspapers. The few thousand pounds 
spent by the government yearly on the meteorological 
office are inconsiderable compared with the services 



XV.] THE FUNCTIONS OF GOVERNMENT. 125 

which it may render to the public by preventing ship- 
wrecks, colliery explosions, and other great disasters 
and inconveniences which often arise from our ignor- 
ance of the coming weather. It is certainly proper 
then to make meteorological observation one of the 
functions of government. 

Great economy would arise, again, if an establish- 
ment like the post-office were created in Great Britain 
in order to convey small goods and parcels. At 
present there are a great number of parcel companies, 
but they often send a cart a long way to deliver a 
single parcel. In London some half a dozen indepen- 
dent companies send carts all over the immense town ; 
each of the chief railway companies has its own system 
of delivering parcels, and the larger shops have their 
own delivery vans as well. Thus there is an enormous 
loss of horse power and men's time. If a government 
postal system undertook the work, only one cart would 
deliver goods in each street, and as there might be a 
parcel for almost every house, or sometimes several, 
there would be an almost incredible saving in the 
distance travelled and the time taken up. This illus- 
trates the economy which may arise from government 
management 

94. The Disadvantage of Government 
Management. On the other hand there is great evil 
in the government undertaking any work which can be 
fairly done by private persons or companies. Officers 
of the government are seldom dismissed when once 
employed, or, if turned away, they receive pensions. 
Thus when the government establishes any new work, 
it cannot stop it without great expense, and the work 
is usually carried on whether it is done economically 
or not. Then again, government officers, knowing 
that they will not be dismissed without a pension, are 
commonly less active and careful than men in private 
employment. For the work which they do they are 
paid at a higher rate than in private establishments. 

It is therefore very undesirable that the Government 



126 PRIMER OF POLITICAL ECONOMY. [CH. 

should take any kind of work into its o^vn hands, un- 
less it is perfectly clear that the work will be done 
much better, and more cheaply than private persons 
could do it. There is a balance of advantages and 
disadvantages to be considered : the advantage of a 
single great establishment with plenty of funds ; and 
the disadvantage that work is always done more ex- 
pensively by Government. In the case of the post- 
office, the advantages greatly outweigh the disad- 
vantages ; the same would probably be the case with 
a well-arranged parcel post ; in the postal telegraphs, 
there are many advantages, but they are obtained at a 
considerable loss of revenue. If the state were to buy 
up and manage the railways of Great Britain, the ad- 
vantages would be comparatively small, but the losses 
would be enormous. In America the express or par- 
cel companies are so admirably managed that they do 
the work more safely and better than the Government 
post office. There can be little doubt, too, that the 
American railways and telegraphs are far better man- 
aged now than they would be if acquired by the Federal 
Government. 



CHAPTER XVI. 

TAXATION. 

95. There must be Taxes. Whether govern- 
ments undertake more or less functions, it is certain that 
we must have some kind of government, and that this 
government will spend a great deal of money. This 
money, too, can very seldom be obtained in the form 
of real profit on the work done, so that it must be 
raised by taxation. We generally apply the name tax 
to any payment required from individuals towards the 
expenses of the local or general government. We may 
easily indeed be taxed without being aware of it ; thus, 
nearly the half of every penny paid for posting a letter 



XVI. ] TAX A TION. 1 2 7 

is a tax, and a town may be taxed through the price of 
gas or water. 

At one time or another, and in one country or an- 
other, taxes have been raised in every imaginable way. 
The Poll Tax was a payment required from every 
/poll or head of the population, man, woman, or child. 
This was considered a very grievous tax and has never 
been levied in England since the reign of William III. 
The Hearth Tax consisted of a payment for each 
hearth in a house ; then a rich family with a large 
house and many hearths paid far more than a poor 
family with only one or two hearths. But as people 
did not like the taxgatherer coming into the house to 
count the hearths, the window tax was substituted, be- 
cause the tax-gatherer could walk round the outside of 
the house, and count the windows. Now, in England, 
we do not tax the light of heaven at all, but we fix a 
man's payments by the rent of his house, the amount 
of his income, or the quantity of wine and beer he 
drinks. 

96. Direct and Indirect Taxes. Taxes are 
called direct taxes when the payment is made by the 
person who is intended to bear the sacrifice. This is 
the case generally with the assessed taxes, or the charges 
made upon people who have menservants, private car- 
riages, &c. As most people keep carriages only for 
their own comfort, they cannot make other people re- 
pay the cost of the tax. But if a carrier or tradesman 
vv^ere taxed for his carts, he would be sure to make his 
customers repay it ; thus the tax would not be direct, 
and carriages employed in trade are therefore exempt 
from taxation. Other taxes in England, which are 
generally direct ones, are the income-tax, the dog-tax, 
the poor-rates, the house-tiuty; but a tax which is 
usually direct, may sometimes become indirect, and it 
is often impossible to say what is really the incid- 
ence of a tax, that is, the manner in which it falls 
upon different classes of the population. 

Indirect taxes are paid in the first place by 



128 PRIMER OF POLITICAL ECONOMY, [CH. 

merchants and tradesmen, but it is understood that 
they recover the amount paid from their customers. 
The principal part of such taxes in England consist of 
the customs duties levied upon wine, spirits, 
tobacco, and a few other articles, when they are 
imported for use in this country. Excise duties 
are similar duties levied upon like goods produced 
within the kingdom. These were called excise, 
because it was originally the practice actually to cut 
oif a portion of the goods themselves, and take it as 
the duty. In England, excise duties are now levied 
on a few things only, such as spirits and beer ; and 
care is taken to make the excise duty as nearly as 
possible equal to the customs duty on the same kind 
of imported goods. English brandy pays a duty 
equivalent to that on French brandy, and the matter 
is arranged so that the duty shall neither encourage 
nor discourage the making of English brandy. Thus 
the trade is left as free as it can be, consistently with 
raising a large revenue. Another important class of in- 
direct taxes consist of the stamp duties, which are 
payments required from people when they make legal 
agreements of various kinds. According to law, deeds, 
leases, cheques, receipts, contracts, and many other 
documents are not legally valid unless they be stamped, 
and the cost of the stamp varies from a penny up to 
hundreds or even thousands of pounds, according to 
the value of the property dealt with. Stamp' duties 
are probably in most cases indirect taxes, but it 
would be very difficult to say who really bears the 
cost ; this must depend much upon circumstances. 

97. Maxims of Taxation. Adam Smith first 
stated certain rules, or maxims, which should guide 
the statesman in laying ^rf taxes ; they are such good 
rules that everybody who studies political economy 
ought to learn them. They are as follows — 

(i) The subjects of every state ought to contribute 
towards the support of the government, as nearly as 
possible, in proportion to their respective abilities; that 



XVI.] TAXATION. 129 

is, in proportion to the revenue which they respectively 
enjoy under the protection of the state. 

This we may call the maxim of equality, and 
equality consists in everybody paying, in one way or 
another, about an equal percentage of the wages, 
salary, or other income which he receives. In England 
the taxes amount to something like ten per cent., or 
one pound in every ten pounds, and this is pretty 
equally borne by different classes of society. It is 
probable, however, that the very rich do not pay as 
much as they ought to do. At the same time those 
who are too poor to pay income tax, and who do not 
drink nor smoke, are almost entirely free from taxation 
in this country ; they pay very little, except poor rates. 
It would be impossible to invent any one tax which 
could be equally levied upon all persons. The income 
tax is a tax of so many pence in every pound of a 
person's income, but it is impossible to make people 
state their income exactly, and poor people could 
never be got to pay such a tax. Hence it is necessary 
to put on a certain number of different taxes so that 
those who manage to escape one tax shall be made to 
pay in some other way. 

(2) The tax which each individual is bound to pay 
ought to be certain, and not arbitrary. The time of 
payment, the manner of payment, the quantity to be 
paid, ought all to be clear and plain. This is the 
maxim of certainty, and it is very important, 
because, if a tax is not certainly known, the tax- 
gatherers can oppress people, requiring more or less 
as they choose. In this case it is very probable that 
they will become corrupt, and will receive bribes to 
induce them to lower the tax. On this account duties 
ought never to be levied according to the value of 
goods, or ad valorem, as it is said. Wine, for instance, 
varies in value immensely according to its quality and 
reputation, but it is impossible for the custom-house 
officer to say exactly what this value is. If he takes 
the statement of the people who import the wine, they 
17* 



I30 PRIMER OF POLITICAL ECONOMY. [ch. 

will be tempted to tell lies, and say that the value is 
less than it really is. And as it would not be easy to 
prove the guilt either of the customs officer or of the 
importers, it is to be feared that some officers will 
receive bribes. But if the wine is taxed simply ac- 
cording to its quantity, the amount of duty is known 
with great certainty, and fraud can easily be detected. 
The same remarks apply more or less to every kind of 
goods which varies much in quality. 

(3) Every tax ought to be levied at the time, and in 
the manner, in which it is most likely to be convenient 
for the contributor to pay it. This is the maxim of 
convenience, and the reason for it is sufficiently obvi- 
ous. As government only exists for the good of the 
people at large, of course it ought to give the people 
as little trouble as possible. And as the Government 
has immensely more money at its command than any 
private person, it ought to arrange so as to demand 
a tax when the taxpayer is likely to be able to pay it. 
Thus there seems to be no sufficient reason why the 
government should make people pay the income-tax 
in January, when they are likely to have plenty of 
other bills to pay. In respect of this maxim, the 
customs and excise duties are very good taxes, because 
a person pays duty whenever he buys a bottle of 
spirits or an ounce of tobacco. If he does not want 
to pay taxes, let him leave off drinking and smoking, 
which will probably be better for him in every way. 
At any rate, if he can afford to drink spirits and 
smoke tobacco, he can afford something for the 
expenses of government. The penny receipt duty, 
again, is in this respect a good tax, because when a 
person is receiving money he is sure to be able to 
spare one penny for the State, and he is generally so 
glad to get his money that he thinks nothing of the 
penny. 

(4) Every tax ought to be so contrived as both to 
take out and to keep out of the pockets of the people 
as little as possible over and above what it brings 



XVI.] TAXATION. 



131 



into the public treasury. This is the maxim of 
economy. Thus, a tax ought not to be imposed if 
it would require a great many officers to collect it, 
and thus waste much of what is collected, or if it 
disturbs trade and makes things dearer than they 
would otherwise be. Again, the government ought 
not to cause people to lose time and money in paying 
the taxes, because this is just as bad for them as if 
they paid so much more taxes. In this respect the 
stamp-duties are very bad taxes, because in many 
cases it is requisite for a person to take his deeds and 
other documents to the stamp-office and lose his time, 
or else employ lawyers and agents to do it for him, 
who charge considerable fees. So troublesome are 
some of the stamp-duties that in many cases people 
neglect to have their agreements stamped, and prefer 
to trust to the honesty of those they deal with. Such 
agreements are thus often rendered of no legal value, 
and the government, for the sake of sixpence or a 
shilling, practically denies law to the people. 

98. Protection and Free Trade. Almost 
every government has employed taxation at one 
time or another, for the purpose of encouraging in- 
dustry within the country. It is often supposed that 
if purchasers are prevented from buying foreign 
goods, they will have to buy home-made goods, and 
thus manufacturers at home will be kept busy, and 
there will be plenty of employment. This is altogether 
a fallacy, which we may call the fallacy of Protec- 
tion, but it is one which readily takes hold of 
people's minds. No tradesman or manufacturer 
likes to see himself underbid by those who offer 
better goods at lower prices. When foreign goods, 
then, are preferred by purchasers, the home manufac- 
turers of such goods complain bitterly, and join 
together to persuade people that they are being 
injured by foreign trade. There is still so much 
national pride and animosity, that a nation does not 
like to be told that it is being beaten by foreigners. 
12 



132 PRIMER OF POLITICAL ECONOMY. [ch. 

The manufacturers, misled by their own self-interest, 
use all kinds of bad arguments to show that if foreign 
products were kept out of the country, they could make 
as good ones in a little time, and then they could 
employ many people, and add to the wealth of the 
country. They fall, in fact, into the fallacy of 
making work before described (section 55), and 
argue as if the purpose of work was to work, and not 
to enjoy abundant supplies of the necessaries and 
comforts of life. 

Now it is impossible to deny that certain owners of 
lands and mines and works may be benefited by 
putting duties upon foreign goods of the kind which 
they want to produce. Those who are already enjoy- 
ing the advantage of such improper duties may, 
of course, be injured when they are removed. But 
what we have in political economy to look to, is not 
the selfish interests of any particular class of people, 
but the good of the whole population. Protectionists 
overlook two facts — (i) that the object of industry 
is to make goods abundant and cheap ; (2) that it 
is impossible to import cheap foreign goods without 
exporting home-made goods of some sort to pay for 
them. 

We have already learnt the obvious truth that wealth 
is to be increased by producing it in the place most 
suitable for its production. Now the only sure proof 
that a place is suitable is the fact that the commodities 
there produced are cheap and good. If foreign manu- 
facturers can underbid home-producers, this is the 
best, and in fact the only conclusive proof that the 
things can be made more cheaply and successfully 
abroad. But then it may be objected, what is to be- 
come of workmen at home, if all our supplies be got 
from another country. The reply is, that such a state 
of things could not exist. Foreigners would never 
think of sending us goods unless we paid for them, 
either in other goods, or in money. Now, if we pay 
in goods, workmen will of course be needed to make 



XVI. ] TA XA TIOiV. 1 3 3 

those goods ; and the more we buy from abroad, 
the more we shall need of home produce to send in 
exchange. Thus, the purchase of foreign goods en- 
courages home manufactures in the best possible way, 
because it encourages just those branches of industry 
for which the country is most suited, and by which 
wealth is most abundantly created. 

99. The Mercantile Theory. Perhaps, how- 
ever, it will be objected that our foreign imports will 
be paid for not in goods but in money ; thus the 
country will be gradually drained of its wealth. This 
is the old fallacy of the Mercantile Theory, 
which was to the effect that a country becomes rich by 
bringing gold and silver into it. It is an absurd 
fallacy, because we can get no benefit by accumulat- 
ing stocks of gold and silver. In fact, to keep pre- 
cious metals causes a loss of interest upon their 
value ; people who are rich may afford to have 
costly plate, and the pleasures they derive from it 
may be worth the interest. But to have more gold, 
or silver money than is just sufficient to make the 
ordinary payments of trade causes dead loss of in- 
terest. Nor is there any fear that the country will 
be drained of money entirely. For, if money 
became scarce, its value would rise according to 
the laws of supply and demand, and prices of goods 
would fall ; then imports would decrease, and ex- 
ports increase. It is only a country like Australia or 
North America, possessing gold or silver mines, which 
could go on paying money for its imports, and then it 
is quite right it should do so, the metal being a com- 
modity which can be cheaply produced in the country. 
Gold and silver must be got out of mines, and there- 
fore a country which buys goods with money must 
either have such mines, or else get the metal from 
other countries which possess mines. In no case, then, 
can we import foreign commodities without producing 
at home goods of equivalent value to pay for them, 
and thus we see beyond all doubt that foreign trade is 



134 PRIMER OF POLITICAL ECONOMY, [ch. xvi. 

a means of increasing, not decreasing, the activity of 
industry at home. 

loo. Is Political Economy a Dismal Science? 
This is only a Primer, a very brief and elementary 
account of some parts of political economy, and it is 
evidently impossible to argue out the subjects of such 
a science in so small a compass. But the purpose 
of this little treatise will be fulfilled if those who begin 
with the primer can be persuaded to go on and study 
larger works on the science. But even he who has 
read only thus far must know that political economy 
is no cold-blooded or dismal science, as people say. 
Is it a dismal thing to relieve the labourer of 
his load, or to spread his table with the most nutritious 
food? No doubt the science is dismal enough so 
far as it leads us to reflect upon the needless misery 
existing on every side. It is dismal to think of 
the hundreds of thousands who lengthen out a weary 
hfe in workhouses and prisons and infirmaries. Strikes 
are dismal ; lock-outs are dismal ; want of employment, 
bankruptcy, dear bread, famine, are all dismal things. 
But is it political economy which causes them ? Is 
not our science more truly described as that 
beneficent one, which, if sufficiently studied, 
would banish such dismal things, by teaching 
us to use our powers w^isely in relieving the 
labours and misery of mankind. 



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